Mineral owner objects to KeyRock’s $2.2 million AFE for Honey Camp No. 1; board extends election deadline 30 days

Mark Stuckey, a mineral owner, told the Virginia Gas and Oil Board on Aug. 19 that he opposes KeyRock’s revised Authorization for Expenditure, or AFE, for the Honey Camp No. 1 well and asked the board for protections for working interest owners.

Stuckey said the operator revised the AFE from roughly $186,000 to about $2,186,000 and that he received notice of the revision only the day before the meeting. "I speak in opposition to KeyRocks proposed AFE revision to the Honey Camp number 1 well from a $186,000 to $2,186,000," Stuckey said. He said he and his brother hold small working interests (stated in the meeting as 1.1 and 0.55 percent, respectively) and that the new AFE effectively prevents them from participating as working interest owners.

The proposed revision, Stuckey said, classifies roughly $1,700,000 as intangible drilling costs. "I do not believe that these costs would qualify as IDCs," he said, adding that he spent the first nine years of his career in financial analysis for a major oil company and that an operating partner would have rejected an AFE with such undocumented charges.

Why it matters: AFEs set the costs owners must pay to participate in drilling and development; a large, late AFE revision can force small owners to accept a nonparticipating (payable) interest, demand a buyout, or face disproportionate capital calls. Stuckey told the board he was "flabbergasted" by the size of the increase and questioned whether KeyRock will fairly report operating costs and capital calls.

Board and staff response and outcome: Board members and staff discussed notice and timing. Board staff told Stuckey the board can require review of accounting or bring concerns to staff for board consideration. The board also clarified that the supplemental pooling order had not yet been entered and therefore the 30‑day election period begins on the date of receipt of that order. The board granted an extension that gives owners 30 days from receipt of the supplemental order to make pooling elections in writing; staff will prepare and issue the supplemental order.

What was said and asked: - Stuckey said prior AFEs for the same well were much smaller: an original February 2024 AFE of about $178,000 and a July repooling AFE of about $186,000, and asked how costs could grow roughly elevenfold. - Stuckey asked whether the board could require audited operating statements or third‑party audits at KeyRock’s expense; staff advised he could bring concerns to staff for further action and the board could request reviews as needed. - Board members and other speakers questioned whether the revised AFE included capital items that had been omitted from earlier filings (for example, on‑site flare stacks and instrumentation) and whether revised AFEs would be submitted for other previously approved units.

What the board did not decide: The board did not approve or disapprove the AFE itself at this meeting and did not order a third‑party audit. The action at the meeting was procedural: to ensure owners have 30 days from receipt of the supplemental order to make written pooling elections and to instruct staff to issue and file the supplemental order and to accept follow‑up concerns from owners for staff and, if necessary, board review.

Context and next steps: Stuckey said he previously sought the board’s assistance to participate as an operator for the unit and that he now fears the operator’s accounting practices. Board staff recommended the owner file any specific requests with staff so the board can consider them at a later date. The supplemental order that starts the 30‑day election window will be entered and served; owners should watch for that filing and follow the order’s instructions for making elections or raising formal objections.

Ending: The board took no final action on KeyRock’s AFE at the Aug. 19 meeting beyond extending the election window; owners and the operator were directed to return documents and questions to staff for follow‑up.