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.
Missouri Cost Overruns for Non-Operator's Non-Consent Option refers to a specific provision in oil and gas leases or agreements that addresses the scenario where a non-operator who does not participate in drilling or development operations incurs increased costs beyond the initial estimate. The concept of cost overruns arises when an operator, who holds the drilling rights, proposes a specific budget for a project, outlining the estimated costs of drilling, development, and subsequent operations. However, in some cases, the actual costs may exceed the initial estimate due to unforeseen circumstances such as unforeseen technical difficulties, equipment failures, or changes in market conditions. Missouri Cost Overruns for Non-Operator's Non-Consent Option recognizes that non-operating interest owners who choose not to participate in the drilling or development operations may still bear some financial responsibilities if the costs exceed the projected estimates. There are typically two types of Missouri Cost Overruns for Non-Operator's Non-Consent Option: 1. Continuous Liability: In this scenario, the non-operator's liability for cost overruns exists for the duration of the well's operation, meaning they will continue to bear the burden of additional costs until the project is completed. 2. Limited Liability: This option limits the non-operator's liability for cost overruns to a fixed amount or a predefined percentage of their ownership interest. Once this limit is reached, the non-operator is no longer financially responsible for any further overruns. To illustrate, let's consider an example. Suppose an oil and gas operator proposes a drilling project with an estimated cost of $1 million. A non-operator with a 20% interest in the project chooses not to participate and is subject to the Cost Overruns for Non-Operator's Non-Consent Option. However, due to unforeseen circumstances during the drilling, the actual cost escalates to $1.5 million. In the case of continuous liability, the non-operator will be responsible for 20% of the additional $500,000. They would need to pay $100,000 to cover their share of the cost overrun. This financial obligation would continue until the drilling operations are completed. Alternatively, if the non-operator opted for limited liability, they might have agreed to bear up to 10% of the cost overruns. In this case, their financial responsibility would be capped at $50,000 (10% of $500,000). Once they have contributed this amount, they would no longer be obligated to cover any further cost overruns. Understanding the Missouri Cost Overruns for Non-Operator's Non-Consent Option is vital for non-operating interest owners as it ensures they are aware of the potential financial risks associated with participating in oil and gas projects. It is essential for all parties involved to carefully review and negotiate the provisions, ensuring a fair distribution of costs and liabilities related to cost overruns.
