Hello! Is it advisable to form an LLC and take out an energy umbrella policy for a 1% WI on several wells?
I have asked the operator for the JOA and the AFE, but it has not been provided to me. I have owned the interests for several months and I’m feeling vulnerable. If the consensus is yes, can I please have some recommended names to help me with this for OK and TX ownership?
Thanks in advance for any help that’s provided!
As with most legal issues, the answer is: it depends.
The reason to form a LLC is to, at least in theory, contain any business loss to the value of assets in the LLC. The concept of piercing the corporate veil (even if the veil is a LLC and not a corporation), can occur in unusual circumstances. It is traditional recommendation that working interest ownership be held within a liability limiting entity, however, there are tax considerations (e.g., passive loss rules). The insurance issue is also something that could be solved by the operator’s adequate insurance coverage also covering your interests, and/or your own insurance,
The concept of joint and several liability can make your 1% WI a real problem. As usual, get competent professional advice… lawyers, accountants, insurance agents, oh my! It is usually dollars well spent. Clients get to make informed decisions.
Good luck.