What is cost to “participate” in Lea County well sections 4&9 T25S-R35?

We received a Fed Ex letter today from COG Re: well proposal under order”. Our interest has been pooled. We are asked if we want to participate in the Operation. If so we must pay our share. The total cost of the Operation is over $ 10 Million! There is a statement that we have a 0.000348900 working interest.
How does that translate to what we would have to pay? We were not offered a lease. An attorney is working on quiet title as not all inherited interest has been filed in Lea County. If we pay to participate, is the likely revenue better than a lease or selling outright? It appears that there is risk that we have to pay more if costs are higher. How much risk? We are not high rollers or savvy about the industry. Thank you for any and all guidance!

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First of all, .0003489WI in a 641 acre unit means they think you own .22 acres. Just to put things in perspective.

  1. What would you have to pay? .0003489 x $10,000,000 = $3489. In each well they drill. Right now they have 4 wells permitted. 606, 705, 703, 604. That’s more or less the deal, $10m to drill, frack, and put in facilities for each 2 mile long lateral well.

These are presumably the Deerstalker wells. Those wells should be very good.

  1. Would the money be higher if you participate than if you lease or sell outright? Yes. But you also have to put up $14k upfront (4 wells @ $3500 each) and the money will come back over a decent amount of time. If you lease your minerals you get a bonus upfront, and then you get smaller revenue with no costs. If you sell, well then you get everything up front, but it’s less. Pick your poison.

  2. Yes, if the well ends up costing more than $10m each you’d have to pay your share of whatever it is. Some risk that the well costs more. Its unlikely its going to cost $15m, but 10% overruns are common. It’s possible they could cost less than $10m as well.

I’d tell anybody who says they are not savvy about the industry to call the operator and ask them to offer you lease terms. Sign a lease, sign division orders, get paid royalty checks. Move on. Assuming their WI % for you is correct, this isn’t worth fretting about too much. If you think you own more acreage than COG/COP is crediting you, take it up with them when you call.

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I also have a interest in this property and I’m curious about the return on other wells in the area - if it would be worth the investment.

NMOILBOY is correct. Also, remember if a producing well is brought on line, there is a monthly maintenance cost to run the well and its operations that will charged against your share for as long thereafter as it produces and you will also be charged for plugging operations down the road…

Participate, or put another way what could go wrong?

  1. The $10 million is an estimate. If you participate and the costs exceed that, you are liable for your percentage share of the excess.

  2. The well produces gas, or the operator can’t produce the oil unless the gas is sold. There is no pipeline in the area, and the well gets shut in. Or the well gets shut-in because of lousy prices. While that well is shut-in, you are still responsible for monthly operating costs, all the while you are receiving no revenue.

  3. the well runs into trouble and they have to, essentially, drill a substitute well. You are liable for those expenditures.

  4. There is an environmental problem, and a subsequent lawsuit. As the operator is acting on your behalf, you get sued as one of the many defendants.

  5. Or some combination of all the above happens.

  6. Unless you are really savvy or the you have enought money, you don’t mind losing it or multiples of it, I wouldn’t recommend it.

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Thank you Tim for pointing out all the ways this could go sideways. Way too risky for my taste, pocketbook and level of understanding.

Thanks TexMex, Makes me wonder how many people COG contacts actually do participate.

Leasing from the operator is easy, but a non-op group will usually pay higher consideration/bonus

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Our sister company, Max Permian, LLC, has leases in the area. Although this acreage is on the eastern flank of the Delaware Basin, there have been some great wells drilled in this area. As others have said, you can lease to the operator, lease to another party (a non-operator), participate in your share of the well, or be force pooled. Which option is best for you depends on your financial situation, experience in the industry, and risk appetite.

Thank you Max We have already been force pooled. Operator has not offered a lease yet.

If you’ve been pooled, the operator owns the interest for the wells on the pooling order. Check out the “nmocd online” and input the case number or order number to see the damage. You’ll have to click into the various documents are read, it’s usually the largest file.