I am trying to figure out some issues we are having with JIB invoicing and revenue payments for what is supposed to be Working Interest in a large Unit. Does anyone happen to know why the division order for the WI (working interest) would have the interests listed twice one right after another on the Division Order? Everything is the same for each duplicate interest listing except on the line item “DO Maj Prod” one says All and the next listing says 100. This is a small Working Interest in a large Unit that I inherited. The interests on the Division Order are listed by Tracts in the Unit where we have our interests which are only two of them. When I spoke with the revenue department for the Operator about how the WI is invoiced and how revenue is paid if we elect to participate in a new drill they claimed our WI percentage for JIB billing is Unit Wide for each well in the Unit. However, they said the revenue is only paid on a Tract basis and distributed to the Tracts and then according to the Tract owners percentage within the Tract afterwards. Does this sound correct? Shouldn’t a Working Interest also be paid Net Revenue Interest on the specific wells we elect to participate in and pay our share of the costs in such as recent new drill proposals? We get proposals and elections regularly and they are for wells in various areas of the Units not just our Tracts. When I asked the revenue department how it is beneficial to participate in the new wells as a working interest owner all they would tell me is it’s more revenue that goes in to the Unit “bowl” to be distributed to all Tract interests throughout the Unit even if we chose to be billed for our cost of the new well under our working interest ownership. From looking at old records briefly it looks like at some point our Working Interest may have gotten mixed in with a small ORRI and the WI revenue has never been paid correctly and been overlooked probably due to no one electing to participate in a new drill before I inherited them. If anyone has any insight or can correct me where I’m wrong I would be grateful for the help.
Your email is confusing as to the decimals and you will get more specific answers by identifying the operator and state and unit as someone else may own a WI in the unit. You may see a WI decimal which would determine your share of costs (JIB decimal) and a smaller NRI decimal which is your share of the revenues LESS the royalties due to the mineral owners. Some operators pay on the unit basis and others pay on the tract basis. If paid on the tract basis, then the volumes and sales will be adjusted to make you even. Suppose your unit decimal is 0.001000. Suppose your tract decimal is 0.020000. Suppose the gross revenues are $500,000 for the month. Operator A pays on a unit basis, so your share is $500, less the royalties. Operator B pays on a tract basis, using the 0.02000. Obviously, they cannot pay 0.02000 X $500,000 = $10,000. So Operator B allocates the production and sales based on the tract. The tract allocation factor here is 0.00100 unit / 0.02000 tract = 0.05 which means that your tract is 5% of the unit. So Operator B will pay your on $500,000 X 0.05 X 0.0200 = $500. Usually both operators will charge the JIB for 100% of well costs X Unit DOI (0.00100 in this case). The more wells drilled, the more gross revenue for the unit. If you do not participate, then you will not be charged the costs and you will not receive revenue based on 100% of the unit, but only on the wells you have participated in. Have you read the Joint Operating Agreement (JOA) for the unit to see if there are penalties for not participating in the well (e.g. your share of revenues is charged for the well costs up to 200% or other penalty rate)? Or it may be set by the State in the pooling order. Being a WI in an active unit is complicated and you need to do a lot of research to understand this. As to the ORRI, it will depend on the back paperwork. Based on may experiences, I doubt that there was a mix-up with a WI. I hope that your predecessor saved all the data, agreements, leases, pooling orders, etc associated with this WI and you have copies. Otherwise you will need to ask the operator for some of this data.
I apologize I know I did not explain that well at all especially with the interest decimals. This is new to me as I am more familiar with the royalty and overriding royalty side of things. It is starting to become clear that my predecessor did not keep records well or the ones before them since this interest is old. I’m thankful the Operator has been pretty cooperative and helpful with providing documents and information so I can create a file on these interests and start keeping track of all details related to them like it should have been done. So it could be worse. I have good attorneys as well. I was just looking for input and advice from those who know more about these types of interest than myself before I take everything to the lawyers to review further. What’s interesting is it’s a large Unit in the Permian Basin area and the Working Interest Percentage is small, but its unit wide for any wells in the unit as the revenue department says they bill by the well. The way the revenue department explained payments to me was the Revenue is distributed out according to each Tract participation and then further distributed according to the owner’s Net Revenue Interest in that specific Tract. What I find confusing is we obviously get letters from the Operator proposing new drills with AFEs just like we do with any other major expenses like P&A. But on the new drills you have to elect to participate in the well and obviously pay your percentage of the cost. But if it’s a Unit wide contractual Working Interest wouldn’t that always be the case and you’re required to participate? From what I had read about working interest it was when you elect to participate you are opting in to share your portion of costs related to the well and hopefully then your percentage of the revenues on that particular well. But it seems not worth it if as the Operator claims all revenue from the Unit is just put in one big pile and then distributed to the Tracts. Maybe I’m missing something as I’m new to this, but I’m trying to learn everything I can about it.
I think I have finally figured out how the Operator is billing for JIB statements and paying on revenue for my working interest. It looks like our WI is Unit wide and r the revenue department states they invoice by the well throughout the entire Unit. Then all revenue regardless of whether a working interest owner elects to participate in new wells or not goes in to one big bowl for the entire Unit and is distributed out according to Tract Participation and then further distributed by the working interest owners interest decimal in the specific Tract. In my opinion it doesn’t amount to much revenue even with numerous new long lateral wells drilled. It’s distributed so much through the Unit and then down to your specific interest that it almost seems like a bad deal but it is what it is for a reason. It’s an old Operating Agreement from 1959 for the Spraberry Unit in multiple counties with Pioneer as the Operator. So I’m guessing they possibly did working interest a bit differently way back then or I’m just not understanding it. Either is possible. But I was under the impression Working Interest gave gave the owner of the interest options to participate in wells and then receive a Net Revenue Interest of any potential revenue from those wells. I didn’t know it was distributed down throughout a very large unit and then your interest comes in to play only for the Tracts. But the Working Interest is contractual and invoiced by the well Unit Wide not by the Tract. Does that seem right to anyone? The way they have it now we basically pay right back out with our JIB statement what you make in our revenue statement no matter whether you participate in new wells or other types of AFEs wise.