Operators Authority Broad authority The operator shall conduct and direct and

Operators authority broad authority the operator

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Operator’s Authority Broad authority The operator “shall conduct and direct and have full control of all operations on the Contract Area … and shall conduct its activities under this agreement as a reasonably prudent operator AAPL Model Form, Article V.A.
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Operator’s Authority Limitations to protect non-operators * Require approval of non-operators to plug and abandon well
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Operator’s Liability Limited liability * Operator liable only for: 1. “gross ” negligence (failure to use smallest degree of care) and/or 2. “willful ” wrongdoing (intentional )
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Liability of Non-Operators Non-operator liable only for its own torts and contracts Exception : Non-operator actively participates in management or has the right to do so
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Initial Drilling * Commencement date * Scope of operation (“Contract area”) * Location , Depth , Formation AAPL Model Form, Article VI.A.
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Drilling Costs Authority for Expenditure (“AFE ”) * Form used to estimate costs - Identifies location, depth, formation - Provides good faith estimate of costs
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Drilling Costs “AFE Parties sign AFE = Commitment to pay proportionate share of reasonable and necessary costs in drilling to the objective specified in AFE
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M&T v. Fuel Resources M&T sued to recover unpaid balance of non-operator Fuel Co.’s share of costs ($150,927) M&T won * By signing AFE, Fuel Co. committed to pay its proportionate share of costs * AFE = estimate, not maximum limit
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M&T v. Fuel Resources No right to “go nonconsent ” on cost overruns Exception : Operating agreement imposes maximum dollar limit on any single project … cost overruns require approval of non-operators AAPL Model Form, Article VII.D.
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Additional Development Proposed Operations A party may elect not to participate in the cost of drilling a well other than the initial well, or the reworking, sidetracking, deepening, recompleting, or plugging back of a well (“go nonconsent”) AAPL Model Form, Article VI.B.
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Go “Nonconsent” Consenting parties advance share of costs of nonconsenting parties AND Consenting parties receive share of production attributable to nonconsenting parties until recover costs incurred plus agreed percentage AAPL Model Form, Article VI.B.
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