Question about plugging costs

General Mineral Rights Discussion
#1

This is a follow up to a question I posted earlier regarding an invoice I received for paying my working share of the expense of plugging a well. I requested and received copies of contractor invoices but I still have questions.

I talked to a couple of experienced oil investors and was told that operators should set aside a savings account out of the proceeds to pay for the eventual plugging. That makes sense, otherwise, how would I know that I'm not being charged twice for this expense? What's my next step? This well produced income for at least 20 years. No explanations were received with the invoice.

Thanks.

#2

If they had set aside money during the life of the well, wouldn't that have lowered what you got paid? Seems to be a wash.

#3

True. But I seem to be in a position of having to trust that I'm not getting double-billed. The people in the business that I've talked to are advising me to ignore the invoices since a funds should've been set aside. I'm willing to pay it once I understand what normally should occur.

#4

The operator will only set aside its own share of funds for plugging. It is up to each working interest owner to plan for and save its own share of the costs. Same thing with workover and other well costs and ooerating expenses which exceed the monthly revenues.

#5

Thanks for the clarification. At the time I requested receipts, I also asked if this was the final bill. It is not. There will be costs associated with cleaning up the land. I know this is a legitimate expense but why not bill it at the end after the equipment is sold and the final amount is known? It leaves me not knowing when I will have closure on this.

#6

The operator does not want to carry your share of expenses and is trying to stay in front of the costs. If there are unexpected costs due to surface damage or broken pipes etc then you are correct to think you could get a later bill. Hopefully the operator has acted responsibly over the years and there will be no problems.