Treaty Energy Corp. (fka TECO)

[tdbowieknife]

all the other interest owners are in line also. Treaty only gets 10% of that oil...

The math.

The land owner gets a cut and there is also State taxes. That's about 25% for both. US. Fuels gets 23% and 77% of that 75%. Treaty is left with 57.75% of the Mitchell wells 2 and 3. Then Treaty sells 50% to TNC. so that leaves 28.875% for Treaty. Now subtract the sales of Royalty interest of Treaty's share. That is 32.55% of the 28.875% that is Treaty's cut of the Mitchel wells = 9.431%

9.431% of 30 BOPD = 2.8293 BOPD.

With that 9.431% of the take from Mitchell wells 2 and 3 Treaty will also will need to pay 50% of the expenses. Treaty still holds a 50% WI in the 2 Mitchell wells.


From Treaty's last 10-K and in it's entirety. It's pretty clear what " in all current and future Texas wells" mean. Also, C&C Petroleum did not own the leases. They were the operator for the leases. Treaty energy is the one that bought and paid for them and was using C&C Petroleum a subsidiary of Treaty Energy to operate and manage the leases.

Sales of Royalty Interests

During the year ended December 31, 2011, we extinguished $685,000 of related-party debt by issuing over-riding royalty interests (“ORRI”) to related parties and creditors of related parties totaling 12.3% in existing and future Texas leases. We allocated a portion of the accumulated historical cost of these Texas leases to the transfer of the ORRI, reducing the carrying values of the Texas leases by $74,435. In addition to the above, and since we received $10,000 in cash as part of the above transactions, we credited the excess of value received ($685,000 in debt reduction and $10,000 in cash) over the carrying value allocated to the 12.3% ORRI ($74,435) to Additional Paid in Capital for $620,565 rather than a gain since the debts were with related parties.

On July 26, 2011, we entered into an agreement to sell a 3% over-riding royalty interest (“ORRI”) in all current and future Texas leases to a creditor in exchange for a reduction of debt in the amount of $80,000. We allocated a portion of the accumulated historical cost of these Texas leases to the transfer of the ORRI, reducing the carrying values of the Texas leases by $18,068 and recorded a gain on the sale of the ORRI of $61,932.

Also on July 26, 2011, we entered into an agreement to sell a 1% ORRI in all current and future Texas leases to a creditor in exchange for a future commitment. We allocated a portion of the accumulated historical cost of these Texas leases to the transfer of the ORRI, reducing the carrying values of the Texas leases by $6,146, charging this amount to expense.

On June 24, 2011, we entered into an arrangement to sell a 1% ORRI in all current and future Texas leases in exchange for a commitment of funding in the future. We allocated a portion of the accumulated historical cost of these Texas leases to the transfer of the ORRI, reducing the carrying values of the Texas leases by $6,058 charging this amount to expense.


On May 10, 2011, we entered into a $100,000 promissory note on which, as an inducement to make the loan, we transferred a 0.25% interest in all current and future Texas leases. We allocated a portion of the accumulated historical cost of these Texas leases to the transfer of the ORRI, reducing the carrying values of the Texas leases by $1,570 and recorded charge to interest expense in that amount.

On October 10, 2011, we entered into an agreement to sell a 5% ORRI and a carved-out production payment of 15% for $600,000 in cash. We allocated a portion of the accumulated historical cost of these Texas leases to the transfer of the ORRI, reducing the carrying values of the Texas leases by $26,628. The balance was treated as a deferred revenue (see “Carved Out Production Payment” in the section below).

On August 12, 2011, we issued a 0.5% ORRI on certain Texas leases to a creditor as an inducement on debt in the amount of $12,500. We allocated a portion of the accumulated historical cost of these Texas leases to the transfer of the ORRI, reducing the carrying values of these leases by $2,288 and recorded interest expense of $2,288 due to the short-term nature of the note.

Carved Out Production Payment

In addition to the royalty sales enumerated above, we entered into an agreement with an investor to sell a 5% permanent royalty (included in the royalties enumerated above on a lease-by-lease basis) and a 15% temporary royalty to be paid until production reaches 200 barrels per day (not included in the above royalty sales discussions) for $600,000. The interests for both the 5% permanent and 15% temporary relate to all current and future Texas leases. The 15% will be paid until daily production exceeds 200 barrels per day at which time the temporary 15% interest reverts back to Treaty.

To account for this transaction, we treated it as two components: a sale of 5% over-riding royalty interest (“ORRI”), and the other 15% as an advance on a production payment liability. Since the amount of proceeds to be paid out in the future is not readily determinable and the Company is not responsible for any shortfall in payments related to future production, the temporary 15% interest is treated as a “Carved-Out Production Payment Payable in Product” consistent with ASC 932 – Extractive Activities – Oil and Gas. Moreover, since the payout amounts are uncertain, no allocation of the proceeds between the 5% ORRI and the 15% temporary ORRI was made, and therefore, no gain or loss was recorded on the transaction.

Consistent with the aforementioned guidance, the cash received related to the 15% carved out production interest is treated as deferred revenue. The deferred revenue will be recognized with production and payment to the holder. The proportional amount of carrying value of oil and gas assets has been carved out of other capitalized costs and will be amortized with production to match the costs to the production periods.

http://www.sec.gov/Archives/edgar/data/1075773/000135448812003207/teco_10k.htm

http://www.treatyenergy.com/news/teco-mitchell-lease-update-may-13-2013