Negotiations
November 3, 2011
Eric R. King
Speed controls being used in
Canada . . . How’s this for effective
speed control?
I don't know about you, but this
would certainly slow me down!
People slow down and actually try
to "straddle" the hole.
This is an actual speed control
device that is currently in use.
It is MUCH cheaper than speed
cameras, radar guns, police
officers, etc.
Pretty clever -- especially when
they move them around every
day.
Isn't art wonderful?
Definitions
• Williams & Meyers, “Manual of Oil and
Gas Terms,” Thirteenth Edition
Joint Operating Agreement
• An agreement between or among interested
parties for the operation of a tract or
leasehold for oil, gas and other minerals.
• This type of agreement is frequently entered
into before there has been any development.
• Typically the agreement provides for the
development of the premises by one of the
parties for the joint account.
• The parties to the agreement share in the
expenses of the operations and the proceeds
of development, but the agreement normally
is not intended to affect the ownership of the
minerals or the rights to produce, in which
respects, among others, the joint operating
agreement is to be distinguished from a
unitization agreement and from a mining
partnership.
Non-Consent Provisions
• An affirmative election by a working
interest owner not to participate with
his/her working interest in the drilling of
a well. Under a JOA, the working interest
owner will have 100% of his/her interest
returned/re-instated/come back in after
400% Payout on the well (4 times).
• Non-consent Interest
The name which has been applied to a form of
carried interest held by non-consent parties
under a widely used form of operating
agreement.
A share of the working interest in a drilling and
spacing unit whose owner does not consent to
bear his proportionate share of the costs of the
drilling and operation of a well, and which
interest is picked up by others under the JOA
who elected to participate with their
proportionate share of the “non-consent
acreage.”
• Non-consent Party
A party to a joint venture, a joint operating
agreement, or a pooling or unitization
agreement who does not agree in advance to
participate in drilling, reworking, deepening, or
plugging back of a well.
Under such circumstances, the interest of the
non-consent party becomes subject to a nonconsent penalty.
• Non-consent Penalty
A penalty against a party to a joint venture, a
joint operating agreement, or a pooling or
unitization agreement, or a pooling order of a
state agency who did not agree in advance to
participate in drilling, reworking, deepening, or
plugging back of a particular well by the
operator or another party to the agreement or
agency order.
The penalty under a JOA is expressed as a
percentage, in Oklahoma typically 4 times the
recovery of the amount expended as to this
non-consent interest (400%).
Industry practice in voluntary pooling
agreements between lessees calls for nonconsent penalties ranging from 200 to 400
percent for development of wells, at lease 300
percent for most exploratory (wildcat) wells,
and in very expensive areas, particularly
offshore operations, as much as 1,000 percent.
With respect to pooling or unitization orders,
the non-consent or risk penalty may be fixed
by statute, or the statue may give discretion to
the agency to set the penalty within a
determined range.
The statute may define the costs subject to the
risk penalty with some specificity, or it may
leave the terms rather general, with the
agency having the authority in either instance
to resolve disputes as to costs.
Casing Point Election
• A right to elect whether a party wants to
participate in a completion attempt.
After the well has reached casing point or
liner point.
Overhead
• A term employed loosely in the oil and
gas industry to describe a variety of
expenses.
• Monthly overhead is the amount paid to
the operator under the terms set out in
the JOA.
Joint Interest Billings
(JIBs)
• Statement attached to a check disclosing
well names, month of expenses, total
expenses, and venturer’s shares.
• JIB’s reflect an owner’s proportionate
share of all costs associated with a well
for a one month period (an invoice for
those charges).
Area of Mutual Interest
Agreements
• An agreement between or among parties
to a farmout agreement or a joint
operating agreement, or other
agreement by which the parties attempt
to describe a geographical area within
which they agree to share certain
additional leases or other interests
acquired by any of them in the future.
Farmout Agreement
• A very common form of agreement
between operators, whereby a lease
owner not desirous of drilling at the time
agrees to assign the lease, or some
portion of it (in common or in severalty)
to another operator who is desirous of
drilling the tract, where there is no cash
involved in the transaction.
Right of Way Agreements
• An agreement whereby one party acquires the
rights to cross a surface owner’s land for a
specific purpose, e.g. for a pipeline, for a road,
for a utility, for underground gas storage.
• This is a right to use the land for a specific
purpose, but does not give ownership of the
land to the right-of-way owner.
Purchase and Sale Agreements
• An agreement for the purchase and sale of oil
and/or gas produced from designated leases,
setting forth the terms and conditions of
purchases and sale, and requirements as to
quality and condition of the product and
measurement of quantities.
Eric R. King
One Leadership Square, 15th Floor
211 N. Robinson Ave.
Oklahoma City, OK 73102
(405) 235-5518