Landnews

JOAs and non-commercial wells

  • 1.  JOAs and non-commercial wells

    Posted 10-22-2019 12:51
    Guys,
    We and our partners all  own non-operated working interests as I am sure many others do in wells which are no longer commercial due to either pricing or highly inflated Operating Overhead plus many other questionable additional expenses such as phones, offices, vehicles, uniforms, etc. etc.
    Most are  subject to JOAs either  1956 or subsequent revisions
    Has anyone had any thoughts or success in getting operators of non-commercial wells to adjust overhead, accept assignments,  plug the wells, etc. ?
    We would appreciate any information, insight, ideas or other input to try and get these wells plugged or other solutions to quit losing money while the operators live off of Overhead we are all paying.
     
    Thank you
    Van Jones
     


  • 2.  RE: JOAs and non-commercial wells

    Posted 10-23-2019 11:30
    First, send a friendly letter pointing out that the well(s) is not profitable, and ask if the operator has any plans to re-work, re-complete, sell, farmout or plug.
    I've discovered that often, because of the operating fees, the operators are often in the black and don't realize there is a problem.
    We have gotten resolution in the above forms a number of times by merely pointing out the problem, some operators have even reduced or furloughed expenses just to keep us in the deal.

    In some cases, the operator has more faith in the future potential of the project and has accepted an assignment, or even purchased our interest.
    Not profitable, but it get's your foot out of the trap before P&A costs show up, and you can write off your investment sooner.

    Ultimately, any working interest owner can propose P&A of well(s). Operator must then S**t or get off the pot.

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    Mark Hannifin
    Midland TX
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  • 3.  RE: JOAs and non-commercial wells

    Posted 10-24-2019 13:04
    "plus many other questionable additional expenses such as phones, offices, vehicles, uniforms, etc. etc"

    Van,
    You are listing things that will probably be covered by the Combined Fixed Overhead Rate in most COPAS agreements or even the old PASOK agreements attached to the JOA.   You mentioned a 1956 JOA so you may be dealing with an older COPAS agreement.  I think the original 62 agreement gave an option of either using the Combined Fixed Rate or to allocate actual costs.   Either way you may be getting charged direct for items on you JIB's that you have already paid through the Overhead rate.

    Contact me direct if I can help.




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    David Harper CPL
    CPA, CPL
    Dallas Petroleum Land Services LLC
    Plano TX
    (469) 828-0032
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  • 4.  RE: JOAs and non-commercial wells

    Posted 10-24-2019 14:44
    Agree with Mark Hannifin's comments completely but sometimes in these times of massive and multiple acquisition modes some Operators  will simply ignore a proposal to P&A non profitable wells.   Under the vast majority of JOA's I am aware of,  a Non Op can propose the P&A of a well for any reason they deem relative,   however some Operators choose to ignore the receipt of a P&A proposal. Good current example, we have sent a certified letter proposing P&A of a well located in Dunn County, North Dakota, but the Operator  has chosen to not to respond to the certified letter P&A proposal.  They are a typical large Independent company backed by PE companies and the name of the game is "buy and flip for a profit as fast as you can" IMHO.  Not knocking their MO because what they do is their business but the JOA is a contract and they choose to "not be bothered by it".  Our solution, well its pretty easy, we are no longer going to pay any JIB costs.  Where all this ends up I don't know, guess only time will tell. 

    F. Andrew Grooms CPL
    Ruidoso, New Mexico






  • 5.  RE: JOAs and non-commercial wells

    Posted 10-23-2019 11:30
    Van, my suggestion is that you review the relevant JOA provisions relating to abandonment of a well that has produced.  Depending on the language of the JOA, you may be able to propose plugging a specific well with the result that those not wishing to plug will have to take over your interest in the well.  In some agreements, the proposing party will retain all of their leasehold rights within the affected spacing unit/contract area except with respect to production from the subject well as to the source of supply then open to production.  Word of caution:  pay very close attention to the language of the specific agreement as some operating agreements will require an assignment of the leases for the spacing unit, which means that you would not retain all or part of your leasehold interest.  You may also be liable for your share of the estimated plugging cost that exceeds salvage value.  Either way, you will cut your operating losses but you need to understand the language of the specific agreement to avoid an unpleasant surprise.  If there are multiple wells on the lease, you may find that one or more of the wells might be economic for you if the others are plugged, in which case you need to also understand individual well performance and historical operating costs.  Good luck.

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    Michel Curry CPL
    Midland, TX
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  • 6.  RE: JOAs and non-commercial wells

    Posted 10-29-2019 11:41
    I have had several operators not respond to a request to plug under the JOA.  Usually the interest we own is too small too make it worth suing to enforce the JOA provision.  The only alternative I have found is to record and assignment into the operator of whatever rights are required to be given up under the JOA and quit paying the JIBs when they come in.  Is anyone aware of any case law that would support my actions if the operator decided to sue for unpaid JIBs?

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    William Warren CPL
    Ross Explorations, Inc.
    Fort Smith AR
    (479) 461-3221
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  • 7.  RE: JOAs and non-commercial wells

    Posted 10-30-2019 10:57

    Following, interested in comments.   

     

    Michelle Smith

     

    VP Land

    The Quiat Companies

    1873 So. Bellaire St., #900

    Denver, CO 80222

     

    720-723-2770 Office

    720-318-2763 Cell

    michelle@quiatcompanies.com

     

     



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  • 8.  RE: JOAs and non-commercial wells

    Posted 11-05-2019 09:54
    William, check your state laws for disclaimer laws.  In Oklahoma just making as assignment of your interest will not fly because the acquiring party does not have to accept the assignment.  All they have to do is file a disclaimer of interest.  It would be recommended to propose a plugging to all working interest owners in the well and try and get majority to plug.  I echo Michael Curry's comments about specific language in your JOA regarding regarding plugging when all parties are not in agreement.  It will be very specific.  Feel free to contact me if you have any questions.  I worked recompletions, workings and pluggings in Oklahoma for over 10 years.

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    Kelsey Blenden
    Chesapeake Energy Corporation
    Tryon OK
    (405) 255-8555
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  • 9.  RE: JOAs and non-commercial wells

    Posted 11-05-2019 15:13

    I realize that the Operator/Assignee doesn't have to accept the assignment.  The assignment was done as a last gasp act to illicit a response from an operator that has ignored a plugging request made pursuant to the JOA and all other communications.  I have done it twice and still not gotten a response from either operator.  I guess my real issue is whether the non-operator is still responsible for billings that continue to be sent by the operator months after a valid plugging request pursuant to the applicable JOA was sent to the operator by certified mail.  I like the idea of proposing the plugging to all other WI owners.  That is worth a try.

     

     

    Bill Warren, Jr., CPL

    WCW Land Company

    6314 East Cook Road

    Charleston, AR  72933

    479-461-3221

     






  • 10.  RE: JOAs and non-commercial wells

    Posted 11-07-2019 15:14
    You might want to check your states regulating body on requirements to plug wells.  Can they intervene?

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    Kelsey Blenden
    Chesapeake Energy Corporation
    Tryon OK
    (405) 255-8555
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  • 11.  RE: JOAs and non-commercial wells

    Posted 29 days ago
    States have specific statues as to P&A rules and regulations and JOA's also have provisions when an Operator refuses to do its duties. Once a well is no longer reporting properly, and no apparent liability on any party can be levied, then the wells become "orphan" and/or deserted wells. All state's have reluctantly set up funds for the State to P&A orphan wells, but they do not like it generally because of limited budgets for such things.  I have found most states barely have $1 million for such issues so they will have their lawyers do everything to chase down the last responsible party in the chain, just like the Federal Superfund authority does.  If an operator skips and the state is forced to do the P&A'ing,there will be holy hell to pay if that so-called operator ever shows back up. Some states are currently in the process of substantially increasing the bonding amount for producing and non-producing wells and in CA, there is an AB that will require operators to estimate the entire cost of P&A idle wells, soil remediation and any other abatement necessary to calculate the bonding amounts, which clearly in CA fits the political objective to eliminate all oil and gas wells.  If you are trying to clear title, you will have a mess on your hands unless you can convince a surface owner to assume that wellbore for irrigation purposes. In TX, after two years, title to deserted wellbores goes to the surface owner.  Unlike the term orphan, deserted is the operative word and if I am correct from an old TSC case, there are elements to desertion as conditions precedent to acquire title.  Good luck and this topic is really out of the landmen's duties but more appropriate with what it takes to be a responsible operator. .    .

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    Stephen Harris CPL
    Huntington Beach CA
    (213) 999-7344
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  • 12.  RE: JOAs and non-commercial wells

    Posted 10-23-2019 11:30
    Many JOA's contain a provision allowing any party, including non-ops, to propose the plugging of a well. Any owners not wishing to plug are required to assume the proposing party's interest in the well. Further requirements or restrictions may apply depending on the particular JOA, but you should be able to get "out from under" a negative situation.

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    Rick Henninger
    Texoma Resources LLC
    Pottsboro TX
    (903) 271-0656
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  • 13.  RE: JOAs and non-commercial wells

    Posted 10-24-2019 13:04
    I have a similar situation that I have researched somewhat and it's my understanding that if you want out of the well completely, you can exercise a Wellbore Assignment of 100% of your non-operating working interest making the Operator the Assignee, record it and send it to them.  You might check it out for yourself.

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    Jon Brown
    Dallas TX
    (972) 231-2700
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  • 14.  RE: JOAs and non-commercial wells

    Posted 10-29-2019 11:45
    My good friend David Harper is starting down the right path.  I'd be more than happy to help as well.  Some of the costs my be covered by the overhead rate, depending on the election made if you have a COPAS 1962 accounting procedure.  If you have a PASO or PASO-T accounting procedure that pre-dates the COPAS 1962, look closely because there may not be an OH escalation provision as found in the 1962 and later forms. Big exposure.  Also, you say the OH rate is too high - there is the initial rate and it shall be escalated every year by the COPAS index (unless, as said, you have a pre-1962 form) - so you can check to see if the proper annual escalation percentages have been used.  Can access the OH calculator on COPAS.org or Marticons.com/Resources to check.



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    Michael Cougevan
    Vice President
    Martindale Consultants, Inc.
    Denver CO
    (225) 252-6274
    M.Cougevan@marticons.com
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  • 15.  RE: JOAs and non-commercial wells

    Posted 10-29-2019 11:46

    Jon,

    This approach may work, but an effective conveyance of title requires assent of the assignee. While recording the assignment may give rise to a presumption of acceptance, the operator could still reject the assignment upon delivery.  



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    Edward Mello CPL
    IOG Capital, LP
    Dallas TX
    (214) 272-4897
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  • 16.  RE: JOAs and non-commercial wells

    Posted 10-29-2019 11:47
    Thank all who read and  responded to the inquiry we posted
    Think it is one of those issues we are seeing and will continue to see
    We (when we operated) looked at our "partners" as people who were supposed to make money if we did
    Think things may have changed  a little with buyouts, transfers of interests, new "style" of management, bottom-line oriented accounting etc.
    Hopefully the posts will be seen not just by the  non-operators but also by operators who will operate for the joint account not their own interests
    Thanks again to all and look forward to additional posts and information

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    Van Jones RPL
    Partner/Land
    Edmond OK
    (405) 348-1247
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