This form provides that when Operator, in good faith, believes or determines that the actual costs for any Drilling, Reworking, Sidetracking, Deepening, or Plugging Back operation conducted under this Agreement will exceed a designated of the costs estimated for the operation on the approved AFE, the Operator will give prompt notice by telephone to the other Parties participating in the operation, as well as delivering a supplemental AFE estimating the costs necessary to complete the operation. Each Party receiving the supplemental AFE shall have forty-eight from receipt of the notice to elect to approve Operators recommendation or propose an alternative operation.
Michigan Cost Overruns for Non-Operator's Non-Consent Option refers to a legal provision within the oil and gas industry in Michigan that addresses situations where a non-operating interest holder fails to participate in the drilling or development of a well or unit. When the actual costs incurred for drilling or development exceed the initial estimate, the non-operator who did not consent to the project is given certain rights and obligations regarding cost overruns. Under this provision, a non-operator who chooses not to contribute to the drilling or development expenses typically has the option to pay their share of the initial estimated costs while avoiding any liability for the cost overruns. In other words, they are protected from the financial burden of exceeding the estimated budget. However, this comes at the price of relinquishing their right to any ownership interest or potential profits generated from the well or unit. However, it is important to note that there can be variations or different types of Michigan Cost Overruns for Non-Operator's Non-Consent Option depending on the specific agreements between the operator and non-operator. Some potential variations may include: 1. Percentage Cap Variation: In some cases, the non-operator may agree to pay a certain percentage over their estimated costs, up to a predetermined cap. This allows them to limit their financial exposure while still potentially participating in any eventual profits if they contribute to the cost overruns within the cap. 2. Reimbursement Clause Variation: Another variation may involve the non-operator reimbursing the operator for the cost overruns incurred, either in full or in predefined proportions. This allows the non-operator to regain their ownership interest and share in any future profits, but at the expense of covering the additional costs. 3. Fixed Cost Variation: In certain situations, the non-operator may negotiate a fixed amount they will contribute towards the project, regardless of the actual costs incurred. This option provides them with cost certainty and shields them from any unexpected financial burden resulting from cost overruns. It is worth noting that the specifics of Michigan Cost Overruns for Non-Operator's Non-Consent Option can vary depending on the contractual arrangements between the operator and non-operator, as well as the individual circumstances of each project. These variations ensure that both parties have the flexibility to tailor the provision to suit their specific needs and interests. In conclusion, the Michigan Cost Overruns for Non-Operator's Non-Consent Option safeguards non-operators from shouldering any financial burden resulting from cost overruns, allowing them to limit their liability but potentially forfeiting any potential profit from the project. The provision can take various forms, including percentage caps, reimbursement clauses, or fixed cost arrangements, depending on the agreed terms between the parties involved.
