Working Interests. If the initial well on the Block is successful, a Lessee (or the Operator) may conduct additional geological studies and may determine to drill additional developmental ▇▇▇▇▇. If a developmental well is to be drilled in the Block, each Lessee owning Working Interests in the Block must be offered the opportunity to participate in, and cover the costs of, such developmental well up to that particular Lessee's Working Interest ownership percentage. Generally, if the Lessee elects to not participate in the additional well, it will lose its rights to such additional well. The rights of such non-participating Lessee to participate in such additional well in the Block will then either be acquired by the remaining Lessees or sold to third parties. Such rights are called Non-Consent Interests because they arise as a result of an existing Working Interest owner's failure to "consent" to supply additional capital for drilling new ▇▇▇▇▇ or other activities. Unlike a "Working Interest" owner, a "Non-Consent Interest" owner does not obtain title and ultimately the Non-Consent Interest reverts back to the original Working Interest owner when the participating parties in the well have received a penalty amount from the production attributable to the Non-Consent Interest. While the Manager intends to focus primarily on Working Interests, any Non-Consent Interest that the Fund will investigate or invest in will have significant potential for economic returns to Investors. Generally, the Working Interests in an offshore gas lease under the OCSLA are burdened by a 16.67% royalty payable to the federal government. Therefore, the net revenue interest of the holders of 100% of the Working Interest in the Projects in which the Fund will invest is approximately 83.33% of the total revenue of the Project and further reduced by any other royalties that apply to a lease block. However, as described below, the MMS has adopted royalty relief for existing OCS leases for those who drill deep gas ▇▇▇▇▇. MMS Deep Gas Royalty Incentive: Royalty Relief ----------------------------------------------- On January 26, 2004, the MMS promulgated new rules providing for incentives for companies to increase deep natural gas production in the Gulf of Mexico ("Royalty Relief Rule"). Under the Royalty Relief Rule, the MMS will suspend royalties otherwise applicable for a certain amount of natural gas production when companies take the risk of exploring and developing deep-gas ▇▇▇▇▇ in shallow-water areas that they have already leased. The MMS believes that by providing this royalty suspension incentive for such ▇▇▇▇▇, natural gas production can come online quickly because the infrastructure (i.e., platforms and pipelines) to some degree is already in place. Under the Royalty Relief Rule, lessees will be eligible for royalty relief on their existing leases if they drill for new and deeper reserves at depths greater than 15,000 feet below sea level. In addition, an even larger royalty relief would be available for ▇▇▇▇▇ deeper than 18,000 feet. Public Policy for MMS Royalty Relief ------------------------------------ The Royalty Relief Rule illustrates a number of extremely important points. The motivation of the government, or the public policy behind the Royalty Relief Rule, is to stimulate exploration for major new gas fields in that part of the U.S. where: o Government geologists and industry geologists generally agree that the Gulf of Mexico represents the highest short term potential for discovering major new gas fields in the lower 48 states. o These major new gas fields are located on the continental shelf of the Gulf of Mexico where there exists an enormous pipeline infrastructure enabling those gas ▇▇▇▇▇ to quickly be brought on production. It should be noted that the Royalty Relief Rule does not extend to deep waters of the Gulf of Mexico off the continental shelf. The Royalty Relief Rule is limited to leases in a water depth less than 600 feet. The U.S. Government has leased massive areas of the Gulf in deep waters, and in ultra deep waters, which basically are areas with water depth of 1,000 feet to 10,000 feet. The government did not extend the Royalty Relief Rule to the deep waters and ultra deep waters because there is no pipeline infrastructure in place to quickly bring those discoveries to market. The government gave the royalty relief where gas, if found, can quickly benefit the U.S. economy by coming to market. The government wants to encourage significant amounts of new natural gas to be developed and come to market. Basically, the government needs massive amounts of gas to be discovered. Over the past 50 years, tens of thousands of shallow ▇▇▇▇▇ have been drilled on the continental shelf of the Gulf of Mexico. The government does not expect significant massive new discoveries to be found at shallow depths. Drilling of the Gulf of Mexico at horizons deeper than 15,000 feet is basically virgin exploratory territory in the Gulf. Only a few percent of the total ▇▇▇▇▇ drilled in the Gulf have been deeper than 15,000 feet, and less than 1% of all ▇▇▇▇▇ have been drilled deeper than 18,000 feet. See Risk Considerations. Improved Seismic Data Reduces Risk for Deeper Drilling ------------------------------------------------------ Drilling ▇▇▇▇▇ deeper than 15,000 feet is technologically feasible, but it is more expensive. (Drilling below 25,000 feet gets technologically more difficult due to extremes of heat and pressure, which challenge traditional drilling techniques and materials). In addition to Royalty Relief for deep ▇▇▇▇▇, two primary reasons for the interest in deeper drilling are: o Much higher natural gas prices make projects much more profitable. o Vastly improved three dimensional seismic data provides more information about geologic structures below 15,000 feet, thereby reducing, but by no means eliminating, the risk involved. 8 Natural Gas Pipeline and Gathering Infrastructure ------------------------------------------------- It has been estimated by the U.S Department of Energy that investment in pipeline and distribution infrastructure, both to maintain existing infrastructure and expand, may average $8 billion per year during the next 5 to 10 years. Therefore, as demand for natural gas further outstrips supply more pipelines and other gathering infrastructure will be needed. Although the Manager intends to focus primarily on obtaining interests in natural gas ▇▇▇▇▇, opportunities in the area of pipeline and gathering infrastructure may arise, either independently or in conjunction with or as part of a Working Interest. The Manager, in its discretion, may conclude that an investment by the Fund in such infrastructure and activities is in the best interests of the Fund. Natural gas midstream activities are essentially the gathering and processing of natural gas. Natural gas gathering systems normally consist of one or more small diameter pipelines that are connected to and deliver raw natural gas from the well head, where it is extracted from the earth, to a central processing point. Once gathered through these pipelines from individual ▇▇▇▇▇ to a processing facility, the natural gas is processed so that it can meet the requirements and specifications of and be transported through "downstream" interstate pipelines. Generally, processing facilities remove impurities from the raw natural gas extracted from the ▇▇▇▇▇. Such impurities include certain natural gas liquids (which can be sold separately), water, carbon dioxide or sulfur, which might corrode a steel pipeline, or inert gases, such as helium, that could reduce the energy value of the gas. The production and gathering of natural gas are generally not subject to significant government regulation and are exempt from the jurisdiction of the Federal Energy Regulatory Commission ("FERC"), which, among other things, sets the rates that a jurisdictional pipeline can charge for its capacity. Although the Fund will focus primarily on Working Interests, if it does invest in gathering and processing Projects, it will attempt to limit its investments and activities to the natural gas gathering system, which generally is unregulated. The Funds can not guarantee that part of its activities will not involve, even if tangentially, pipelines that could be considered as an interstate pipeline and thus subject to FERC regulation. See Risk Considerations. Natural Gas Agreement --------------------- As of the date of this Offering, no definitive arrangements have been made for the sale or transportation of natural gas that may be produced from the Projects or transported on any pipelines that the Fund may own. The Fund believes, however, that it is likely that gas from the Projects described herein will have access to pipeline transportation and can be marketed. See Risk Considerations.
Appears in 1 contract
Sources: Confidential Memorandum (Ridgewood Energy P Fund LLC)
Working Interests. If the initial well on the Block is successful, a Lessee (or the Operator) may conduct additional geological studies and may determine to drill additional developmental ▇▇▇▇▇. If a developmental well is to be drilled in the Block, each Lessee owning Working Interests in the Block must be offered the opportunity to participate in, and cover the costs of, such developmental well up to that particular Lessee's Working Interest ownership percentage. Generally, if the Lessee elects to not participate in the additional well, it will lose its rights to such additional well. The rights of such non-participating Lessee to participate in such additional well in the Block will then either be acquired by the remaining Lessees or sold to third parties. Such rights are called Non-Consent Interests because they arise as a result of an existing Working Interest owner's failure to "consent" to supply additional capital for drilling new ▇▇▇▇▇ or other activities. Unlike a "Working Interest" owner, a "Non-Consent Interest" owner does not obtain title and ultimately the Non-Consent Interest reverts back to the original Working Interest owner when the participating parties in the well have received a penalty amount from the production attributable to the Non-Consent Interest. While the Manager intends to focus primarily on Working Interests, any Non-Consent Interest that the Fund will investigate or invest in will have significant potential for economic returns to Investors. Generally, the Working Interests in an offshore gas lease under the OCSLA are burdened by a 16.67% royalty payable to the federal government. Therefore, the net revenue interest of the holders of 100% of the Working Interest in the Projects in which the Fund will invest is approximately 83.33% of the total revenue of the Project and further reduced by any other royalties that apply to a lease block. However, as described below, the MMS has adopted royalty relief for existing OCS leases for those who drill deep gas ▇▇▇▇▇. MMS Deep Gas Royalty Incentive: Royalty Relief ----------------------------------------------- On January 26, 2004, the MMS promulgated new rules providing for incentives for companies to increase deep natural gas production in the Gulf of Mexico ("Royalty Relief Rule"). Under the Royalty Relief Rule, the MMS will suspend royalties otherwise applicable for a certain amount of natural gas production when companies take the risk of exploring and developing deep-gas ▇▇▇▇▇ in shallow-water areas that they have already leased. The MMS believes that by providing this royalty suspension incentive for such ▇▇▇▇▇, natural gas production can come online quickly because the infrastructure (i.e., platforms and pipelines) to some degree is already in place. Under the Royalty Relief Rule, lessees will be eligible for royalty relief on their existing leases if they drill for new and deeper reserves at depths greater than 15,000 feet below sea level. In addition, an even larger royalty relief would be available for ▇▇▇▇▇ deeper than 18,000 feet. Public Policy for MMS Royalty Relief ------------------------------------ The Royalty Relief Rule illustrates a number of extremely important points. The motivation of the government, or the public policy behind the Royalty Relief Rule, is to stimulate exploration for major new gas fields in that part of the U.S. where: o Government geologists and industry geologists generally agree that the Gulf of Mexico represents the highest short term potential for discovering major new gas fields in the lower 48 states. o These major new gas fields are located on the continental shelf of the Gulf of Mexico where there exists an enormous pipeline infrastructure enabling those gas ▇▇▇▇▇ to quickly be brought on production. It should be noted that the Royalty Relief Rule does not extend to deep waters of the Gulf of Mexico off the continental shelf. The Royalty Relief Rule is limited to leases in a water depth less than 600 feet. The U.S. Government has leased massive areas of the Gulf in deep waters, and in ultra deep waters, which basically are areas with water depth of 1,000 feet to 10,000 feet. The government did not extend the Royalty Relief Rule to the deep waters and ultra deep waters because there is no pipeline infrastructure in place to quickly bring those discoveries to market. The government gave the royalty relief where gas, if found, can quickly benefit the U.S. economy by coming to market. The government wants to encourage significant amounts of new natural gas to be developed and come to market. Basically, the government needs massive amounts of gas to be discovered. Over the past 50 years, tens of thousands of shallow ▇▇▇▇▇ have been drilled on the continental shelf of the Gulf of Mexico. The government does not expect significant massive new discoveries to be found at shallow depths. Drilling of the Gulf of Mexico at horizons deeper than 15,000 feet is basically virgin exploratory territory in the Gulf. Only a few percent of the total ▇▇▇▇▇ drilled in the Gulf have been deeper than 15,000 feet, and less than 1% of all ▇▇▇▇▇ have been drilled deeper than 18,000 feet. See Risk Considerations. Improved Seismic Data Reduces Risk for Deeper Drilling ------------------------------------------------------ Drilling ▇▇▇▇▇ deeper than 15,000 feet is technologically feasible, but it is more expensive. (Drilling below 25,000 feet gets technologically more difficult due to extremes of heat and pressure, which challenge traditional drilling techniques and materials). In addition to Royalty Relief for deep ▇▇▇▇▇, two primary reasons for the interest in deeper drilling are: o Much higher natural gas prices make projects much more profitable. o Vastly improved three dimensional seismic data provides more information about geologic structures below 15,000 feet, thereby reducing, but by no means eliminating, the risk involved. 8 Natural Gas Pipeline and Gathering Infrastructure ------------------------------------------------- It has been estimated by the U.S Department of Energy that investment in pipeline and distribution infrastructure, both to maintain existing infrastructure and expand, may average $8 billion per year during the next 5 to 10 years. Therefore, as demand for natural gas further outstrips supply more pipelines and other gathering infrastructure will be needed. Although the Manager intends to focus primarily on obtaining interests in natural gas ▇▇▇▇▇, opportunities in the area of pipeline and gathering infrastructure may arise, either independently or in conjunction with or as part of a Working Interest. The Manager, in its discretion, may conclude that an investment by the Fund in such infrastructure and activities is in the best interests of the Fund. Natural gas midstream activities are essentially the gathering and processing of natural gas. Natural gas gathering systems normally consist of one or more small diameter pipelines that are connected to and deliver raw natural gas from the well head, where it is extracted from the earth, to a central processing point. Once gathered through these pipelines from individual ▇▇▇▇▇ to a processing facility, the natural gas is processed so that it can meet the requirements and specifications of and be transported through "downstream" interstate pipelines. Generally, processing facilities remove impurities from the raw natural gas extracted from the ▇▇▇▇▇. Such impurities include certain natural gas liquids (which can be sold separately), water, carbon dioxide or sulfur, which might corrode a steel pipeline, or inert gases, such as helium, that could reduce the energy value of the gas. The production and gathering of natural gas are generally not subject to significant government regulation and are exempt from the jurisdiction of the Federal Energy Regulatory Commission ("FERC"), which, among other things, sets the rates that a jurisdictional pipeline can charge for its capacity. Although the Fund will focus primarily on Working Interests, if it does invest in gathering and processing Projects, it will attempt to limit its investments and activities to the natural gas gathering system, which generally is unregulated. The Funds can not guarantee that part of its activities will not involve, even if tangentially, pipelines that could be considered as an interstate pipeline and thus subject to FERC regulation. See Risk Considerations. Natural Gas Agreement --------------------- As of the date of this Offering, no definitive arrangements have been made for the sale or transportation of natural gas that may be produced from the Projects or transported on any pipelines that the Fund may own. The Fund believes, however, that it is likely that gas from the Projects described herein will have access to pipeline transportation and can be marketed. See Risk Considerations.
Appears in 1 contract