Update: The commie napalm clustefrack is already starting to come apart
Imagine that . .. Who could have thought that exchanging fee interest in mineral rights for a working interest in a wildcat dry shale gas exploration well fracked with napalm was maybe a bit of a jinxy idea ? Maybe one of the landowners had an accountant. Or a lawyer. Here is the Tioga Propane Commie Clusterfrack deal terms as explained by the promoters :
To All: I want to take this opportunity to thank all of those who came to the Forum in Binghamton for our kick off meeting. The purpose of the meeting was to meet our operator eCORP and to learn more about our opportunity. I realize that this approach is more complicated and contrary to many of the things we have discussed over the past four years. But then we never expected to have the opportunity to participate in the working interest side of the equation.
Most people don’t understand quite what the working interest of an oil and gas lease is.
Re-read that last sentence. Note something odd about it ? (Not just the mangled syntax) Most of the prospective investors have never even heard of a working interest. And for good reason. It is illegal to sell working interests to unsophisticated investors. And this propane commie clusterfrack is, to put it mildly, a very complicated and sophisticated oil and gas deal. And the Texas promoters, eCorp are selling the landowners working interests (a security) in wildcat exploration wells fracked with propane in exchange for their mineral rights. Under securities law, only sophisticated investors can be sold working interests in gas wells. Because the working interest is the same as share ownership in a company – which requires full disclosures of the risks – And can only be sold to investors that understand the risks involved – without these sophomoric and misleading explanations:
The easiest way to explain it is this: In every business there are expenses and there is income. The working interest is ownership of the expenses. Thus, if you own 66.7% working interest; it means you must pay 66.7% of the bills that are due for that lease. The first question is “Why in the world would you want ownership in expenses?” The answer is quite simple – it is because they are entitled to a percentage of the income, called net revenue interest. The net revenue interest is the income, the working interest is the expenses.
A working interest in a gas well is equity ownership, the liability of which is akin to a partnership interest. Meaning when the clusterfrack turns into a clusterbomb – you, the working interest owner, get sued – as one of the owners of the operation. And when you lose in court – or the bank forecloses – you lose you working interest, ie. mineral rights. And if there is a capital call of the working interest owners – on a cost overrun or to re-complete a well, you will either have to make it, or if the other partners make it for you, your interest will be crammed down by a factor of say 2 to 1 – meaning for every $1 dollar you fail to cough up, your interest gets reduced by $2. Miss a few of those and you are squeezed out of the well. And in case you are wondering, there will be cost overruns. Even on exploding propane clusterbombs
Clear so far ? Ready to sign up ?
A working interest is a security – like a partnership interest. Which means the Tioga landowners will be exchanging their mineral rights and some cash for interest in a speculative venture. Except that unlike common shares, they owners will be liable for the expenses of the Clusterfrack – like partners in a partnership, proportionate to their interest. Kind of the worst of both worlds. Which is why only sophisticated investors and O&G professionals own working interests. . .
As a security, a working interest is (generally) only offered under a Reg D “blue sky” offering (which means it is no more secure or credible than a piece of blue sky) to sophisticated investors. And it has to have disclaimers as to all the obvious financial, operational and environmental risk – (which these happy-talk memos to the landowners do not)
Such a securities offering can only go to accredited or qualified investors (rich folks) that are sophisticated enough to understand the risks – which must be explained in detail to prospective investors – in a formal offering. Or the sponsors (the promoter, the lawyers etc.) are committing securities fraud, and they are liable to end up in the slammer.
Which is why you don’t see these commie napalm clusterfrack deals much in Texas – where the prisons aren’t so nice . . .
To make this quickly apparent, I want to present a conventional oil and gas lease. One landowner, one oil company. The landowner owns the mineral rights and signs a lease that gives him a 20% royalty. The operator drills and finds natural gas and produces it. The landowner owns 20% of the net revenue interest, so he receives 20% of the revenues. The operator owns 100% of the working interest, thus pays for 100% of all expenses. However, the operator has 80% of the net revenue interest income or profit. In the conventional lease that profit leaves Tioga County as well as New York State. If the operator sells 50% of their working interest, then they still own 50% of the working interest, and 40% net revenue interest because he would pay half of the landowners royalty. In our opportunity the landowners in the sharing company own 66.7% or 2/3 share of the working interest which entitles them to 2/3 share of the net revenue interest income.
Which also means that any debt – or mechanic’s liens from unpaid contractors, taxes or road use fees – become an encumbrance on your mineral rights, which you no longer own, but have converted into a partnership interest (working interest) in the team clusterfrack run by the nice Texans. Congratulations . . .
This is in addition to 12½ % royalty set aside for the landowner in a producing unit. This opportunity allows us to participate in a much larger income opportunity than I ever believed possible. With the spot price at the Henry Hub below $2.00 / MM Btu this past week now is an excellent time to develop our play .
The “Play” – wherein the New York landowner plays “The Rube” – a stock character in these land deal melodramas. Who risk their mineral rights to drill a wildcat well with “The Texas Promoter”, here played by a Texas promoter. On an automated frack using gelled propane – ie. napalm – by some dudes that say “eh ?” at the end of each sentence, eh ? Sound vaguely familiar ? Ever watch the TV show “Dallas” ? It was based on real characters. . . .
In its April short-term energy outlook, the EIA lowered its estimate for second-quarter average Henry Hub spot prices by 28.9% to $2.20 per million British thermal units from $3.10 in last month’s estimate. For the full calendar year of 2012, it expects spot prices to average $2.51/MM Btu, down 20.8% from its estimate of $3.17 last month, for a year-over-year decline of 37.3% from 2011.
Right – good fracking luck making a nickel on a napalm frack on dry shale gas any time this decade . . .
The entire structure of our deal is designed to make the maximum funding available for the development process. We have talked in the past about the cost elements which add into the business expense equation. The finding cost is the first expense to consider. A definition of the term “finding cost” is in order. By “finding cost,” I mean only the expenditures on leases, geological and geophysical exploration, and wildcat well drilling. The drilling of field wells and equipping of leases and wells to produce comes under “development cost.” The two together are referred to as F&D cost. That said a significant piece of the finding cost is the bonus money. By our lack of bonus money we are able to greatly reduce the finding cost to make our activities show a profit more quickly in a poor market. When we become profitable 2/3 of the profit or net revenue interest income goes into the sharing company money bag. When we prove the play we may continue to produce or we might sell a portion of our working interest to another company “flip the lease”. The flip is a very profitable process.
Very profitable ? Really ? If the wells are dry shale gas – there will be no flip, the clusterfrack will be a flop – like these fracking fiascos :
Meanwhile – the operator will get a piece of the upside on any well that hits – and spread their costs over all the wells. While the landowners will be limited to whatever their working interest is – based on the rights they contributed – limiting their upside to the wells on their property . Do I need to draw you a picture ?
STEP working with the sharing company and eCORP could decide to flip 50% of the working interest to a new operator. That would result in 50% of the sharing company 2/3 share or 1/3 being retained and 1/3 flipped to the new operator.
Right. Check. Got it.
0 X 0 = 0
And in the mean time, the landowner risks all of their mineral rights – in perpetuity – to drill some wildcat shale gas wells. With propane clusterbombs
The sharing company would now have a working interest in the new operator giving them access to 1/3 of the new operations profit or net revenue interest income. In addition and throughout all of the above the landowner has retained his 12½% The other thing to note is that all of the above revenue stream stays in New York State and Tioga County along with the associated taxes collected. This will greatly increase the prosperity of all of our citizens and enhance everyone’s standard of living.
Or at least the lawyer’s standard of living . . .
Until one of the landowners – or their attorney – wakes up to what’s happening with this deal: securities fraud. Legally, what the promoters and lawyers are doing is no different than selling working interests in an oil well to hundreds of naive investors. Who have no business investing in oil wells (much less propane fracked wildcat shale wells).
The financial transaction is the same as if they had sold the mineral rights and invested the proceeds in a working interest for a Texas operator to drill a well somewhere else – like New Mexico.
Which few of these landowners are sophisticated enough to know how to do. Even with an unregulated napalm frack of a wildcat well in their back pasture. Caveat emptor Frack Babies.
In Texas, any local District Attorney would have shut this scam down on sight. It took the New York AG a bit longer. But they are learning . . . . they are learning . . .
Nutshell on Chris Denton’s Napalm Commie Clusterfrack = 100% fracking BS