Can anyone offer insight into the difference in revenue between WIP and RI? I’m new to this and my relatives claim they were never offered a lease and were told to take it or leave it as working interest partners. One would assume the revenue is better as WIP due to the risk. Are there any advantages to being WIP instead of royalty? API#s 42-389-39709, 42-389-39714 and 42-389-39715. Thanks in advance for any guidance…
Generally, your intuition is correct. Usually an operator will try to lease all parties in a unit prior to drilling a well. Any unleased parties will get a well proposal, where they are shown the costs associated with the operator’s development, and their respective share of the costs. It can get a little complicated on if you elect not to take a lease, and you elect not to contribute to the drilling and completion costs. Generally, if there was no prior agreement, the operator (and sometimes other parties) will carry the owners who go “non-consent” until 1x payout. Non-consent just means you didn’t take a lease and you didn’t put up the capital. If there was a prior agreement, there can be a penalty imposed.
Part of the problem is that my relatives are all 90 yrs old or so. They get a lot of solicitations to buy their mineral rights and are paranoid about being taken advantage of. Maybe there was a well proposal that they rejected but they claim not. I was thinking of requesting the Joint Operating Agreement from the operator and trying to dig up some history of what happened. It sounds like they are “non-consent”. Thanks for your reply…
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A few other points. If you would have had 1/5 royalty, but went WIP instead, you’d get five times as much after payout, less your share of operating expenses after payout. The operator will claim he needs to have more than 1X payout, and will try to put expenses in the payout figure that don’t really belong; lawsuit time. Your payments will be considered active income, subject to self-employment taxes. You could be responsible for your share of the cost of any environmental disasters.
Look at the permit for Powderhorn 42-389-39714, there were a number of unleased mineral owners. Some were identified with addresses and others were not. RRC sent letters to the identified unleased mineral owners about the well and they had an opportunity to protest. Unleased owners without addresses were notified by publication. A law firm filed a protest for some client owners and those were resolved. Here is a link where you can open all the attachments at the bottom and see if your relatives are listed. Contacts with landmen who are trying to lease can be confusing. You may want to discuss this with other family members to see about organizing to help manage these assets. And certainly to gather all records and get owner addresses on file for the future. https://webapps2.rrc.texas.gov/EWA/drillingPermitDetailAction.do?methodToCall=searchByUniversalDocNo&universalDocNo=494897984&rrcActionMan=H4sIAAAAAAAAAL1Ru27DMAz8mnQU9HKaDByMoJ37CJrByKDYgiJAtgxK7gPwx5d2USB1OmfjHU_HIzUKzkGOggsQd4h1WWcfu5cam4ofYeY_7Mn0fZKM2izbT5OYi-8rVWqtSCBhJR8fDiWVaiob9CH4zj1ZbH1Oz4PFrx9X1kQSaWhtPsdmH3cmBCIKQJsH7Pbx1Rqsz0RtgF-FqdLcLdEl1hs07ZsJg50zUga12artvdATKuBkne_SwefJjNz-YCEX-FK_GCtudoP0u_saeuMsXuz470HEsVrqpqwgRgmCj4o-VQMfCyLWRFy_vsk5vwGxODBAXwIAAA
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