Well proposal: comparing participating vs non-consenting vs leasing

General Mineral Rights Discussion
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On 8/14/23 I received a letter from Ovintiv USA (via Lonewolf Energy) that contained a proposal for a well in Duchesne County, Utah (Phillip 13-7 4-4-13-24-1H). Apparently I inherited a small interest, purchased in 1952, from my grandmother’s niece’s husband. Surprise!

Lonewolf calculates my proportionate share as “3.0303% of (0.086263/ 1280 spacing)”. The well is producing.

The letter gave me three options: participate in the well, be deemed a non-consenting party, or lease my interest to Ovintiv. I have to decide what to do within 25 days, which doesn’t leave much room for negotiation.

My questions are these: (1) Do I have any options other than participating, non-consenting or leasing? (2) How do those three options compare in terms of the amount of liability I’m exposed to if the operator incurs liability? In which cases would the operator’s liability insurance cover me? If I’m leasing, do I have liability for what the operator does? (3) For the participating or non-consenting options, in what way do I pay costs for the well? If costs exceed revenue, does the excess cost come out of my pocket? Is the out-of-pocket possibility different for participating vs non-consenting? (4) Is it likely that I can get an extension on the original 30-day limit for decision?

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@Yenobis, participating in a well is usually done by people with deep pockets and ready access to legal and accounting advice and services, because, yes, if the expenses outweigh the revenue, the working interest (which is people participating in the well) pays the difference out of pocket. Each state rule is different for non-consent, but it looks like in Utah you may still receive your share of royalty but would become part of the working interest if the well pays off enough to cover expenses and the non-consent penalty. If you only sign the lease, you would receive your royalty out of the royalty interest and not be part of the working interest. Hope this brief explanation is helpful.

1 Like
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Yes, it helps a lot. I’m going for leasing.

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