Landnews

Force Pooled parties

  • 1.  Force Pooled parties

    Posted 10-29-2019 11:40

    If a party elects under an OK force pooling to participate in the well, but after completion refuses to pay their share of well insurance, does the operator have any recourse, or can they be self-insured?

    Thank you.

     

     



  • 2.  RE: Force Pooled parties

    Posted 10-30-2019 10:56

    Good Question!  Does anyone know where some written guidelines exist for OCC Participations?  I guess "the JOA of the OCC"

    Thanks!

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    Jeff K. Ramsey

    TrinAca Investment Corporation

    PO Box 14858

    Scottsdale, AZ  85267-4858

    480-860-5413

    Jeff@Trinaca.com

     

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  • 3.  RE: Force Pooled parties

    Posted 11-05-2019 09:52
    If I remember correctly, between the pooling order (random example: http://imaging.occeweb.com/AP/Orders/003A0338.pdf) specifying that the participant must commit to the expense of drilling, completing and equipping the well and OK lien law (see here: https://law.justia.com/codes/oklahoma/2014/title-42/section-42-144/ ), an operator should be covered in terms of recouping those costs if the non-op is just refusing to remit payment.

    If the question is more along the lines of how to handle a sophisticated non-op who carries their own insurance:

    I never had this issue come up...I suspect with larger companies this is handled through JIB-link between the accountants/insurance groups at each company. I would think it would be a simple matter of the non-op supplying their certificate of insurance and the operator adjusting insured amounts appropriately. I could be wrong, but I don't think you'll find OCC rules RE: non-op self-insurance. Hope this helps?!

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    Christopher Yonker CPL
    chrisyonker@gmail.com
    San Antonio TX
    (713) 857-4444
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  • 4.  RE: Force Pooled parties

    Posted 11-05-2019 09:52
    I would start by looking at the AFE filed of record with the OCC with the pooling application to see what line items of costs are included in the AFE. If the operator listed well control insurance as a line item on the AFE, then they probably have the right to charge it to the joint account.

    I believe that the general insurance items, typically on a Schedule D of a JOA, would be chargeable to the joint account under the OCC order.

    If you find out any different, let us know?

    David K. Harper, CPA, CPL
    Dallas Petroleum Land Services LLC




  • 5.  RE: Force Pooled parties

    Posted 11-05-2019 09:54
    I represent a non-operator in New Mexico. In the past, we carried our own COW (Control of Well) insurance Policy and some operators gave us the option to elect to be carried under our own policy on the Well proposal AFEs or be carried by the operator's insurance. However, in some instances we were still being billed for our share of the operator's COW policy, so we were double paying on coverage. I would assume this is why they are refusing to pay if they have their own policy. We ended up just dropping our COW policy and limiting our policy to general liability and allowing us to always be carried under the operator and not worry about double paying on the COW policy.

    There is an article in the AAPL JOA that addresses insurance policies which is what our wells are generally proposed under. It states that non-operators are only required to carry a general liability policy.

    I do not know if this helps. This is just my experience regarding Well insurance.

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    Elizabeth Baker
    Sharbro Energy, LLC
    Artesia NM
    (575) 736-6606
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  • 6.  RE: Force Pooled parties

    Posted 11-05-2019 09:56
    Sandra,

    Workers Compensation and Automobile insurance are required by State laws; a non-operator cannot self-insure for these types of insurance and must pay their share of the operator's premiums that are billed to the joint account. No exceptions that I am aware of.

    Industry custom and practice is that the operator chooses the types and amounts of insurance it is going to carry for the joint account, and then bills the joint account for the related insurance premiums. A non-operator may acquire its own insurance for any additional amounts above what the operator carries, but it must still pay its share of the operator's premiums unless the operator allows the non-operator to self-insure. In most instances, an operator will allow a non-operator to self-insure provided the non-operator carries the same types and amounts of insurance being carried by the operator, proportionately reduced to the self-insuring party's interest, and that copies of the insurance certificates are submitted to the operator within a certain number of days prior to spud (usually 10-30 days). Otherwise, the non-operator is bound to, and must pay its share of, the operator's policies. Allowing a non-operator to self-insure usually only applies to the policy period. Therefore, a non-operator must submit to the operator a new request to self-insure for each new policy period. Otherwise, the non-operator reverts back to being under the operator's policies (i.e. - allowing a non-operator to self-insure is a 1-year exemption from being subject to the operator's insurance policies).

    When under a force pooling order in Oklahoma, a non-operator has few rights, and choosing to self-insure is not considered to be one of them. If a non-operator is desirous of self-insuring, it must either (1) include a provision in a Pre-Pooling Agreement with the operator providing that the force pooled party will have the right to self-insure, in accordance with the industry practices referenced above, should the pooled party elect to participate in the proposed well pursuant to the pooling order, or (2) protest the pooling hearing to see if the administrative law judge will address and make a decision on allowing the pooled party to self-insure should the operator refuse to allow it. Although I do not know how a judge would decide such a protest, or if this issue has already been addressed, my opinion is that the operator would prevail.

    Most insurance policies are 1-year policies. Premiums are usually paid on a annual basis.  An operator's insurance premium will be proportionately reduced if the operator allows a non-operator to self-insure. The operator will notify its risk management representative who will then proportionately reduce the premium payment due from the operator. Therefore, the non-operators who remain under the operator's insurance policies pay the same amount as if the self-insured party remained subject to the policies.


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    Dorsey Roach CPL
    Oklahoma City OK
    (405) 301-5068
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  • 7.  RE: Force Pooled parties

    Posted 11-05-2019 09:56
    At the large OKC oil and gas company I worked for we were always self-insured and just had to provide our certificate of insurance to the operator upon request.  I don't think in a normal pooling order there is any provision for paying your share of well insurance, just the AFE costs (which may include well insurance?).  That being said, I don't see why your attorney could not add that to the pooling order that they write up for the judge to sign, that participants needs to pay their share of well insurance or provide proof of insurance. I am unaware of any regulation that would prohibit them from doing so.

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    Amanda Clark CPL
    Ball and Morse PLLC
    Norman OK
    (405) 701-6983
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