Quickstart     Cashflow File     Day     Participation     Other Financiers    Map     Oil Rights     Well Depths     Partnership     Dealmaker

  Shotgun Agreement     Running in the Red     Bankruptcy     Share Price     Corporate Position     Fast Track     Winning

  Leaving the Seminar  Hostile Areas  Subsidies  Joint Ventures  Administrator  Drilling Contractor  Rig Move Cost  Depletion

  Expiry of Rights  JV Leader  JV Drilling Decision    Posting Land    Waiving Extension Fees 

After governments, in the real world, sell oil rights to oil companies, these companies have collectively proven to be extremely slow in developing their oil rights―even after spending lots of money to acquire them.

Governments really don't like these oil companies sitting on their own rights for such a long time. Instead, they want the oil royalties in the government coffers and well paying oilfield jobs for its citizens. Hence, most governments of oil-producing countries have created various legal enticements to get oil companies actively working their rights.

The best enticement has been a time limit on which the oil company can hold on to its rights.  If the oil company meets certain obligations―such as finding oil, drilling an exploration well, or even running some seismic―the oil company gets to keep the oil right longer.

A second effective enticement is to have the oil company pay an extension fee after a certain date. When the expiry date comes due, the oil company can choose to pay the fee and keep the right or to forego the fee and lose the right. Of course, the oil company would not have to pay any fee if it starts producing oil on that right.

Expiration Rules in OilFinancier

The expiry process in OilFinancier follows the second process. All rights expire in 30 OF days. However they can be extended by paying―before the due date―an extension fee. This extension fee is $5,000 or the going rate for new oil rights, whichever is greater. When the extension fee is paid, the owner holds the rights for another 30 OF days. Rights can be extended as long as the owner keeps paying the extension fees before the due dates.

The "Going Rate" is the 20 OF day average paid for new oil rights (rounded down to the nearest $1,000). This going rate is calculated on the day the right is first bought, or in the case of an extended right, on the date of renewal.

The extension fee will be posted on the "Expiry of Rights" webpage for each seminar. In other words, financiers will know their extension fees well in advance and can budget for them.

Financiers can avoid paying the fee by making a drilling deal before the due date. Even a stacked deal (i.e., the well will be spudded after the due date) will keep rights in their possession without paying the fees.

Financiers can pay the extension fee at any time, and the fee gives another 30 days past the due date. For example, an oil right is due on Day 127. The financier decides to pay the fee on Day 122. The right will be extended to Day 157, and the new extension fee will be based on the 20 OF day average (of successful bids on new rights) for Day 122.

Note that rights cannot be extended, in this manner, by 60 or more OF days past the current OF Day.

If you do not pay your fees, you lose the right. It is your responsibility to pay the extension fee before its  due date. There will be no warning. Just let the administrator know that you wish to extend the rights for location "XX" at the listed amount. There is no negotiation for a lower amount. The fee will be deducted from your cash flow file, and the right will be kept in your possession. 

See also: Waiving the Extension Fees

Financial Implications When an oil right comes due, you can do a financial analysis to determine whether to extend the right for another 30 days. The analysis should give you a clue whether: 1) the geology or lag time to see the geology develop is worth the fee, 2) you should accept the less-than-perfect deal sitting on the table to avoid paying the fees, or 3) the fee could be better spent elsewhere such as buying other oil rights, investing, or buying a drilling rig. Such a financial analysis could be quite convoluted. Those financers who master this analysis will know when to keep oil rights and when to let them go.

In the Red?

If you are in the red, you cannot renew your oil rights. If you have lots of oil rights or are a JV venture leader, you should carefully plan your cash flow to have funds for extension fees as oil rights come due.  

Selling Oil Rights

Going Away?

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