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.
New Mexico Cost Overruns for Non-Operator's Non-Consent Option refer to the financial obligations and potential liabilities that a non-operating party in an oil and gas venture may face when choosing not to participate in investments or operations. In the oil and gas industry, multiple circumstances can lead to cost overruns, and the non-operator's non-consent option comes into play when a non-operating party decides not to contribute financially to an investment or operational decision made by the operator. This choice can be made due to various reasons, such as financial limitations, differing strategic interests, or concerns about the project's profitability. When a non-operator elects not to consent, they may be liable for any cost overruns that occur during the project. The term "cost overrun" refers to the additional expenses incurred beyond the initially estimated or budgeted amount for a particular activity or project. These overruns can arise from factors like unexpected technical difficulties, rising material and labor costs, regulatory changes, or delays in project execution. In New Mexico, specific types of cost overruns for non-operator's non-consent option can include: 1. Drilling Cost Overruns: These occur when the cost of drilling a well exceeds the estimated budget or initial expenditure. Factors such as encountering unexpected geological formations, increased engineering requirements, or equipment failures can lead to higher drilling expenses. 2. Completion Cost Overruns: These arise during the completion phase of an oil or gas well, which involves installing necessary equipment and ensuring the well is ready for production. Completion cost overruns can result from unexpected well bore conditions, additional stimulation treatments, or unforeseen regulatory requirements. 3. Operations and Maintenance Cost Overruns: Once a well is producing, ongoing operational and maintenance costs may exceed the projections made during the initial investment decision. Factors like equipment failures, repairs, market fluctuations impacting commodity prices, or increased regulatory compliance costs can contribute to overruns in this category. 4. Infrastructure Development Cost Overruns: In some cases, oil and gas projects require the development or improvement of infrastructure such as pipelines, gathering systems, or processing facilities. Cost overruns can occur due to factors like unanticipated environmental remediation, regulatory compliance, permitting delays, or challenges in securing necessary land or right-of-way agreements. Non-operators who choose to exercise the non-consent option must carefully consider the potential financial risks associated with cost overruns. Depending on the specifics of the agreement, non-operators may need to bear the burden of these additional expenses or face potential consequences, such as reduced future revenue share or loss of investment. Understanding the various types of cost overruns involved in the New Mexico non-operator's non-consent option allows stakeholders to make informed decisions and assess the financial implications of their participation or non-participation in oil and gas ventures.
