Sharing Experiences with Unleased Mineral Owners

Hello - Looking for the unleased mineral owner that has been through the process of being a “partner” with O & G companies to share there experiences with the Pros and Cons of the working interest participating partner or if anyone has any suggestions on how to find out how to get a hold of people that have gone through this process — Let’s find out the real Pro’s and Con’s!

You have already posted this discussion in Reeves County forum. Here is some reality. Once the oil company drills, you will receive no funds until the well has paid out - recovered drilling and operating costs to date. It is unlikely that you will receive any information from the operator on the status of payout unless you constantly pursue the company. If your interest in the create is small, then you are more of an irritant to the company as you are not paying up-front costs and you may not get information only with involvement of legal counsel. You can lease to some other company before drilling if that company wants to participate in the well. Once the well is drilled, or perhaps even spudded, then you will be stuck dealing with the operator. Some operators are easier to deal with than others and hopefully you have one of those. Bottom line is that unless you know what you are doing and intend to put time and energy into tracking the revenues and estimated drilling and operating costs, this is is not necessarily an easy road. At least you can find the reported sales on the CONG on Texas Comptroller website. Good luck.

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I’ll be brief and direct. If you elect to be a working interest owner I’d suggest you have a very good Attorney who knows what they are doing look over your initial paperwork. I will tell you that once you sign on that dotted line, your relationship with the Oil company will change drastically. You will then be treated like the red headed step child. They will drag their feet out the longest time they can to answer your questions that they maybe obligated to answer. If you ask of them something they don’t think you are contractually obligated to know, however so innocently, they will just ignore you. Either way the name of the game is, IF they make it difficult enough and frustrate you enough, maybe you will just give up and accept what they will give you and you will leave them alone. I hate to tell it to you like that but I can not stress how important the paperwork, terms and obligations are during initial agreements.

Caveat Emptor.

Thanks for your input Jay - Actually they have treated us like the red headed step child since day one - that’s why we haven’t leased - so I assume it will only get worse – have you personally gone through this with an O & G? I received rule 37 application today from RRC – sounds like they want to put the screws to us big time

Thanks for the comments TennisDaze - Have you personally gone through this process yourself?

Skip, I haven’t replied because I’m not sure my situation is at all close to yours. I inherited a working interest in a well in east Texas. It’s old and no longer produces much. I pay out in expenses about what I reap in production each month. Lots of paperwork as far as taxes, income and production costs. I’m not crazy about my working interest. But as I said, not sure my experience really relates to you and a new well.

Skip. An unlessed owner can be liable for their share of the drilling cost as a “carried” working interest owner. The operator must first begin a Rule 37 Exception preceding through the Railroad Commission of Texas. If you have received a notice of this proceeding you may well be on your way to being “carried” by the operator which is not a good place to be.

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I would make sure to protest that Rule 37. Lease line obligations might be all you have left to prevent drainage of your minerals with NO compensation. Hypothetically, let’s say you have 10 acres in the middle of a 300 acre unit. The wellbore must cross your tract before you become a carried WI. Without a lease, the operator must stay 330’ or 440’ (depending on field rules) from your tract. If they are granted a Rule 37, then they may drill as close to you as they please without crossing your tract and putting you into a carried position. If you protest, likely they will be denied the exception. Your situation would need to be evaluated independently. Attorneys are great for the legal issues but sometimes a cost/benefit analysis is more prudent. If you need an idea of the value of your interest both to you and the operator, I would be willing to help.

Be careful of leasing to another company. You have protections as an unleased owner. But if you lease, then the obligation to develop your minerals is on the lessee, and the operator drilling the well does not have to let the other lessee participate if they cannot come to terms. So worst case scenario is you get the leasing bonus but may never see any royalty payments.