Replies to This Discussion

Permalink Reply by reallyoldguy on March 8, 2010 at 18:04

Boy that sure puts things in perspective, D. Garr! Thanks!

Permalink Reply by jffree1 on March 9, 2010 at 5:11

J.R.E. that is good advice. There have been lots of discussion about "possible" royalty payments over in La. groups and on the main page. Lots of royalty calculators posted that an owner can play with to see what could be paid. Just do a search for "Royalty Calculator".

The big thing to always keep in mind is that the first check is the biggest and they go downhill from there. These wells always decline... sharply... in the first six months and won't reach any sort of plateau for some time. So, in order to keep the big checks coming in, more wells have to be brought online. If anything happens to deter drilling, you could end up with one well holding the unit until the incentive to drill returns.

So, don't go into debt based on what the first two or three checks look like because you can't count on royalties from one well to remain that large into the future.

Permalink Reply by DJG on March 9, 2010 at 6:31

All very sound advice indeed and yes, those decline curves will be very drastic (currently looking at projected decline of 70-85% during that first year of production) so don't go out and buy yourself and island thinking that the income reflected in those first few checks will be repeated in the subsequent month's payments.

The numbers above, however, were just to give a picture as to what potential could be out there to give a bit of counterbalance to those offers for cash in hand for selling the minerals outright or selling royalty.

The 6BCF per well estimate for the N.Carthage acreage was taken directly from Devon's head honcho's statements during their Q4 2009 report. Granted, there is likely some spin there to excite investors but it does seem to correspond to wells with IP's in the range of 12mmcfd so that figure does not seem to be drastically over-optimistic from what I've read.

Still, even if the EUR ends up being half of that 6 BCF figure quoted by Devon and NG price is factored at a low $4.00 range - which would both seem to be quite conservative estimates - with 581 acres in the play the potential return could conservatively be $2.5 million over the life of that very first well that should be drilled in the next year or two in order to get the overall acreage HBP.

Not too bad and, unless there is any urgent need for cash today, then just the royalty payment from just that one well alone would likely trump any offer for buying the minerals outright.

Permalink Reply by jffree1 on March 9, 2010 at 6:55

Don't forget to tell them about the taxes they will pay.

Permalink Reply by reallyoldguy on March 9, 2010 at 7:16

I was just abouit to say the same thing, jffree1. Might as well take almost half right of the top of those numbers.

Permalink Reply by DJG on March 9, 2010 at 7:56

Very true, but keep in mind that tax will be taken from either scenario.

Permalink Reply by reallyoldguy on March 9, 2010 at 8:03

Ive been telling jay williams that its best not to sell anything and just sit tight, as we all are. So, Im totally contradicting myself when I say this, but one thing to keep in mind is that there is only 15% Capital Gains Tax when selling minerals vs. royalty tax. That, in itself, could be a huge savings depending on the long term production of the wells and all things considered.

Permalink Reply by jffree1 on March 9, 2010 at 14:14

JRE

I know they offered to top lease at 1500/ac and 20% on acreage that was in it's final 6 mo. on extension. They originally paid 250.00 in 2005 for 3+2 and 3/16, I believe. This was NE near the Ironosa.

Permalink Reply by RBH on March 9, 2010 at 12:16

reallyoldguy...what's up? RBH

Permalink Reply by JWC on March 9, 2010 at 13:17

reallyoldguy give us an update on the Encana Blackstone well. I thought you commented about the oil production..

Permalink Reply by RBH on March 9, 2010 at 11:10

Don't sale..be patient

Permalink Reply by jay w on March 8, 2010 at 18:24

D. Gaar... thank you very much for your detailed explanation of the potential of the property. It definitely makes you sit back and take a long deep breath regarding the idea of selling any of the rights. I think we will probably just hold tight and see where the ride takes us. thanks again! Jay

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