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.
Nebraska Cost Overruns for Non-Operator's Non-Consent Option: Understanding the Ins and Outs In Nebraska's oil and gas industry, the cost overruns for non-operator's non-consent option can be a complex topic that requires careful navigation. This detailed description aims to shed light on this subject, providing a comprehensive understanding of key terms, processes, and potential outcomes. Keywords: Nebraska, cost overruns, non-operator's non-consent option, oil and gas industry, non-operator, consent, operator, risk, financial implications, drilling, operations, participating, non-participating, penalty, liability, working interest. 1. Overview of Nebraska Cost Overruns: When an operator proposes drilling or other operations within an oil and gas lease, they typically seek the consent of all working interest owners, including both operator and non-operator parties. However, in cases where a non-operator decides not to participate (non-consent), certain cost overruns may arise as a result, leading to significant financial considerations. 2. Non-Operator's Non-Consent Option: The non-operator's non-consent option refers to the right of a working interest owner to decline participation in drilling or other operations proposed by the operator. By exercising this option, the non-operator chooses not to share in the costs of the operation, but also forfeits any potential profits unless a non-consent penalty applies. 3. Types of Nebraska Cost Overruns for Non-Operator's Non-Consent Option: a. Penalty Calculation: If a non-operator elects not to participate, Nebraska law allows operators to charge a penalty, usually a percentage of the non-operator's share of costs. This penalty accounts for the non-operator's continued ownership interest without incurring the costs. The calculation of this penalty may vary depending on the specific lease and associated agreements. b. Additional Costs: In addition to the penalty, non-operators who exercise the non-consent option may face additional costs arising from unforeseen circumstances or cost escalations during the operation. These costs may include unexpected equipment repairs, formation-specific complexities, environmental compliance, and other factors that can impact the project's overall budget. 4. Liability and Potential Outcomes: a. Limited Liability: One advantage of the non-operator's non-consent option is limited liability for cost overruns. By choosing not to participate, the non-operator's financial responsibility is primarily restricted to the penalty and any additional costs associated with the operation. The operator assumes the majority of the financial risk and the ultimate responsibility for the project's success. b. Potential Profit Forfeiture: While limiting liability, non-operators also forfeit their rights to a share of any profits generated by the operation. This can be a significant consideration since the profitability of the project heavily relies on the success and productivity of the drill site. 5. Mitigating Risks and Maximizing Benefits: To minimize the impact of cost overruns and optimize potential benefits, non-operators contemplating the non-consent option should thoroughly evaluate the operator's experience, track record, and financial stability. Additionally, engaging legal counsel or industry experts to review lease agreements, cost estimates, and penalty calculations can provide valuable insights and ensure fair treatment. In conclusion, understanding Nebraska cost overruns for the non-operator's non-consent option is crucial for any working interest owner in the state's oil and gas industry. By comprehending the potential risks, penalties, liability, and financial implications associated with this option, non-operators can make informed decisions that align with their interests and objectives.
