Wellbore Assignment & Plugging Liability

Oil & Gas Field Operations
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Dear Owner,

I received the following message from Mack Energy. I redacted some info since I have no idea whether or not is could be harmful to leave in:

Upon geologic review, we see no remaining up hole potential in the Tommy No.1 well. The well is currently producing in the XXXXX (“Unit”) and will need to be P&A’d after the Unit reaches the end of its economic viability. Therefore, Mack requests an assignment of your interest in the wellbore in lieu of any future plugging liability.

Please mail your executed wellbore assignment in the enclosed envelope. If you have any questions regarding this Wellbore Assignment, please feel free to contact me at XXXXXX

I sent the following query to Mac Energy:

*I and my brothers received letters from Mack Energy talking about talking about the xxxxxx, Oklahoma. These letters are asking us to send in a wellbore assignment to Mack Energy. I have no idea what this really means. Does it mean we are signing over mineral rights to Mack and walking away from the property entirely? Or, as I suspect, something else? If we do this, what do we get in return? What is the up side for us, and what is the downside, or even possible downside? There was a mention of $10 consideration but that doesn’t even cover the notary fee.

Any light you can shed on the subject would be quite helpful.*

I got the following reply:

*The xxxxx No.1 wellbore was brought into the xxxxx (“Unit”). Mack has begun the process of flooding the Unit for secondary recovery with nitrogen and the xxxxx well is not showing any potential, at least at this time, as being a producer. It is highly probable we just need to plug this well. In lieu of plugging the well at this time we sent out wellbore assignments to see if any owners would want to relinquish their wellbore rights in lieu of their plugging liability. This assignment only applies to the wellbore of the xxxxx well. It does not transfer any leasehold or mineral interests of any kind and will not affect any reversionary interest to the Unit. The $10 consideration and other good and valuable consideration is just standard legal language utilized in the agreements. There is not $10.00 exchanged, the consideration here is the cost of the plugging liability.

There is no obligation for you to do the wellbore assignment. I suspected it was highly improbable to get this done, but am going through the process before we plug the well. If not accomplished, I will be sending out another letter for owners to take over the well or it will be plugged.

Please feel free to give me a call if further explanation is needed.*

The only thing that is not clear is if I do nothing, could I be on the hook for anything later? And I have to ask the questions, “Why do they want me to do this? What is in it for them? What plugging liability mentioned above are they talking about?”

Any thoughts would be much appreciated.

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Hi BCFD. It sounds like you’re a non-op interest owner in the well? If so, doing nothing will mean that you’ll just have to pay your % of the plugging costs, just like any other fee associated with the well. However if you’re a leased mineral owner in the well, the plugging costs wouldn’t be your responsibility anyway….and the letter would be odd.

The wording of letter is also intentionally specific. Any landman with decent training has legal liability as a primary focus any time anything is in writing, and I wouldn’t view this as accidental. “No remaining uphole potential” simply means that, as of the date of the geologic review, the company did not find anything interesting uphole of the current completion. Not that there’s nothing. Not that there’s no utility for the well. Not that there’s no strategic or leasehold value of the well. And not even that there’s no potential in the current completion. In fact, the letter says the well is “currently producing” which implies there’s a net positive amount of value in the well remaining (at least for them, as the operator).

Also, assuming all is true in the letter (and again, I think it’d be rare for a trained landman to state factually incorrect things in writing to another owner of a well, but it does happen) the reasons I can think of that they’d want more ownership of a well right before the well’s demise would be cleaner title, control over salvage (selling or repurposing the equipment currently on the well), preserving future alternate use, or avoiding the hassle of dealing with scattered wellbore owners later. The salvage and alternate-use items are most likely why they want more interest.

Wellbore-only assignments are common and not something that is likely to steal additional interest, but every assignment and conveyance document needs careful review to make sure that’s the only thing that’s being conveyed. And it may indeed help simplify things for you and the operator to go through with it. But step one is to understand a little more about what your actual liability would be (and remember, you have a share of the salvage too), then decide if it’s something you want to mess with.

4 Likes
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Thank you so much for your reply. This is very helpful.

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Tracy is correct on finding out if you are a non-op working interest owner or a simple royalty owner. That particular well has been inactive since Feb 2023. It was for the Morrow Deep. Be very careful to not give away any mineral rights as there are multiple reservoirs under that section.

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Thank you for your input once again. It is a non-op working interest.

I thought I had redacted the well name. Oops. I don’t know if this is a security risk or not.

My inclination right now is to do nothing and let it ride.

At some point I was notified that a bunch of wells were being consolidated (if that is the right word) into the Carter Knox Upthrusted Morrow Operating Unit in Grady and Stephens Counties. A few of my wells in the Township, Range, and Sections were specifically mentioned in an email, but only for Stephens County. Grady was not mentioned. This confuses me to no end.

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They consolidated a LOT of Morrow wells into the Carter Knox unit in order to nitrogen flood it. Then they drilled about 100 new wells for both production and injection. I have not been terribly impressed with the results so far. The new unit is over 5000 acres if I remember correctly. I have a copy of the unitization order if you need it. It lists which tracts are in the unit and you can mark yours for reference. If you only have a tiny fraction of the unit (which is in the document), then your plugging costs may be very small.

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Your credit from surface eqpt sale might cover it