AboutFrederick M. Scott CMM Expertise I can answer questions about oil and gas leasing, and give suggestions on how to respond and what to expect when contacted by an oil company or their representative offering to lease your minerals. I can answer questions about selling or buying minerals, and can provide advice that will help ensure you get a fair deal. I can also answer questions concerning forced-pooling, correlative rights, deeds and conveyances, and the infamous "post-production" costs that are often deducted from royalty checks. I am most experienced with Oklahoma properties and laws, but am able to answer questions concerning other oil and gas producing states in many cases.
Experience I am a Certified Professional Mineral Manager (CMM) (certified by the National Association of Royalty Owners in Tulsa, OK) and have managed my own oil and gas properties in Oklahoma for over 10 years and have dealt with many landmen, attorneys, and other oil and gas professionals in the process of doing so. I am also a member of several professional associations and have written articles of interest to royalty owners which have appeared in several industry publications. I have prepared deeds and done title work and curative for my own minerals; and have acquired a good deal of knowledge on the subject of oil and gas law and landwork in general in the process.
Expert: Frederick M. Scott CMM Date: 1/20/2008 Subject: Participating in a Gas Well (vs leasing rights)
Question Mr. Scott, I am being given an opportunity to invest and participate in a gas well with a close, personal friend of 30 years in the Fayetteville Shale Play (Van Buren area.
1. What's your opinion of a land owner "participating"?
2. Should we sell the gas with/through the operating partner?
3. Know consultants which could guide us properly?
I hae enjoyed reading all of your answers. Glad to see you back. ~AJ
Answer Allen, my opinion of participating in a well is perhaps not what you are hoping to hear. I'd say don't do it unless you are a real gambler and can really afford to lose ALL you initially invest (and possibly more) without any pain. The chances of a payout are slim in many cases unless a really good well comes in. I personally know very few people that have actually made any money by participating rather than leasing. I know the lure of a 13/16 share is tempting, rather than a “lousy” 3/16 royalty share, but you’re also taking on a lot of risk that you wouldn’t have as a royalty/mineral owner. Even if you are not a mineral owner and just plan to put some money in on it, it’s still the same risk.
In addition, if you don't have any experience with this, there are many surprises you may not be aware of. For instance, if the first well is a dry hole a vote will likely be taken to decide whether to drill a second well. If you are in the first well, you are also in the second well if one is drilled. You would be expected to pay your share of THAT well also, even if it was also a dry hole. If you did not wish to pay, you would not have any interest in the second well if it "hit" except for your royalty interest, if any.
You will also be on the hook for your share of well maintenance costs if a producing well is drilled. If only a small well comes in, these maintenance/secondary recovery costs could mean you’ll never make a profit!
If you’re near lots of prolific new production, then you might fare better than most, but it’s still quite a risk. Be SURE you can LOSE all this money, and possibly spend even more for a second well before you sign up.
I don’t want to put too much of a damper on it, people DO make money sometimes too. I just want to let you know some of what you may be in for in the way of costs. I am not an expert at participating in wells, nor have I ever done so. I myself have even considered it, but thought better of it after speaking with some folks I know.
Hope this helps, and hey, if you do it anyway, I’d be interested to hear how it goes! There’s still a little wildcatter in me somewhere!
Also, if you do this, I would likely sell through the operator. They usually get the best price and are familiar with all the contracts etc. and can help resolve disputes with buyers. Just make sure they are an honest operator. I know some consultants here in Oklahoma, but I'd say try to find one out there...perhaps an oil and gas attorney who's familiar with JOA's, AFE's etc. (Joint Operating Agreements and Affidavits For Expenditure)
