The April ethics question asked what geologists could or should do to protect their personal interests in these somewhat chaotic and unstable times.
This was the question:
A geologist works up and promotes a prospect, retaining an overriding royalty as part of the compensation. The prospect covers several potential locations, only some of which are drilled and completed by the company taking over the deal.
The operating company is subsequently bought out by another firm – and later, decpning oil prices result in some wells being shut-in but not plugged and abandoned prior to the operator's bankruptcy.
A new company comes in to take over operations, and it drills some of the previously undrilled locations – and somewhere during all these events, the paperwork relating to the overriding interest held by the geologist is lost or overlooked, intentionally or otherwise.
What should the geologist do?
Sid Parkans of Houston said the issue is not a question of ethics, but one of preserving legal rights.
"But these are legal rights only if the original instrument was filed for record," Parkans wrote.
"The first step should be a meeting with the officials of the new company, with all the documents of the original deal. If this fails, the only recourse is to seek legal assistance.
"If the override was not recorded," Parkans warns, "it is questionable whether any recovery is possible."
Robert M. Mason, a consultant in Littleton, Colo., offered some practical advice for what a geologist should do.
"While it is the successor company's responsibility to honor any and all legally binding contracts relating to acquired properties," Mason wrote, "it is also the geologist's responsibility to make sure that company does so."
The geologist, he said, must:
- "Keep track of his overrides and who is responsible for paying them, reviewing this list at least once a year ...
- "Notify a successor company in writing of their obligation(s), enclosing a copy of the contract defining the override.
"This should be sent certified mail, with a requested return receipt."
- "Follow up either by phone or in writing to make sure timely payments are made.
"In other words all good intentions and benefits of the doubt aside, assume nothing and take personal responsibility for your property. Your override is probably not at the top of the ]to do' list of an acquiring company."
DPA Response: The Paper Shuffle
A geologist needs to protect his/her overrides in existing wells as well as future wells.
If the operating company and producing property go into bankruptcy court, the geologist should file appropriate papers with the court, which lay claim to the override.
The geologist also should follow up with the operating company if it comes out of bankruptcy, to ensure the override is intact. If the property is sold to another operator during the bankruptcy process, then the geologist needs to follow up with the new company.
Strange things can and do happen during the "paper shuffle." Geologists need to follow the proceedings closely to ensure that their rights are not terminated, accidentally or on purpose.
The geologist may wish to retain a bankruptcy attorney to ensure his or her rights are protected.
What Would You Do?
This month's ethics question is short, sweet and hard to beat.
Is it ethical to charge different clients different hourly rates?
Why or why not?
Responses will appear in the August EXPLORER.