My Operator is Making Money … Part 2, The Operator’s Response

Gray Reed
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Gray Reed

The threat: You, the operator, are operating unprofitable wells where monthly costs exceed or barely equal revenues, making money on the fixed COPAS overhead charges. Your non-operators are going into the economic hole and they don’t like it.

Yesterday we presented options for the non–operator to stop the financial bleeding. Today we anticipate responses available to the operator.

Yesterday’s caveats still apply.

Response #1

Shame on you for besmirching my hard-earned and long-standing reputation. I’m well aware of my solemn duty to operate as a reasonably prudent operator, but an operator can’t be liable unless it engages in willful misconduct or gross negligence. The drop in commodity prices is beyond my control. Blame it on that Chinese/Wuhan flu thing. I am, and you should be, patient until demand picks up and prices to return to normal. Then all will be well again. I’m not operating the well strictly for speculation. Further, as your overpriced and opportunistic lawyer will tell you, litigation over PPQ is expensive and the outcome will be left to 12 strangers on a jury in a county you don’t live in. And remember, if there is an AMI in our operating agreement and you take new leases, we are likely to be partners all over again.

Response #2

You can‘t remove me except for good cause, and that pretty much requires gross negligence or willful misconduct. At the long and expensive trial you seem to want to have I will polish up my halo and, most earnestly and sincerely, testify that I’m trying my best in these difficult times and we are all just waiting for better days and higher prices. Good luck trying to prove good cause … or gross negligence … or willful misconduct.

Response #3

Propose to abandon the well if you want, but you can’t avoid P&A costs.  Trust me, I’ll be sure that those P&A costs are greater than the value of the salvageable materials.  You will have to write a large check in order to escape your obligations.

Response #4

Not so fast on lowering those COPAS overhead rates. As operator, there is no amendment without my agreement.  In the meantime, the overhead rates are fixed and enforceable in a contract that you agreed to.

Response #5

Want to spend your money on a wild goose chase an audit? I welcome the challenge. You won’t find anything. All of those costs are reasonable, necessary, and competitive with other operators in the area.

Response #6

After all these years of my faithful stewardship, your lack of gratitude rivals that of my surly teenager. If you stop paying, I’ll sue for breach of contract, get a judgment for unpaid JIBs AND my legal fees, and collect by going after the other assets you own.

Response #7

As an operator, I’m not obligated to buy you out and I’m not interested. But because I’m a fair and reasonable person, I might consider taking your interest for the price of my forgiveness of your outstanding JIB obligations. This generous offer exipres in an hour.

and a musical interlude

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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