What costs for drilling, completion, production, etc. can be charged to unleased mineral owners?

I have property in a unit with a well that went on-line last month and am unleased. I have sent certified letters to the operator asking for itemized cost reports and have only received statements showing tangible/intangible costs; nothing specific. Do I need a professional to audit cost reports, and if so, can someone recommend one? Thanks!

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Permalink Reply by Les Bamburg on July 22, 2010 at 16:52
Keb, this was a Cotton Valley well and not really indicative of the Haynesville Shale.

Deciding to be unleased is very much something done on an individual basis since each well and person's situation is very different.
Permalink Reply by Les Bamburg on July 22, 2010 at 16:39
Horseman, the well has produced 145 MMcf to date. The drilling costs looked okay for the well depth. The complettion cost looked a little high but the operator may have encountered some issues.

The average natural gas price to date was $6.77 per Mcf which looks okay. The operating cost averaged $1.90 per Mcf which is high but this may be a factor of the well producing at low volumes and incurring a lot of fixed costs. The well is producing at 55 Mcfd so as you stated this well is unlikely to reach payout.

The operator will continue to produce since the well is generating net revenue (gross revenue less operating expense). Remember the capital cost is sunk and is not part of the operator's decision to produce or plug.
Permalink Reply by Horseman on July 22, 2010 at 16:51
Thanks Les,
Your wealth of knowledge is appreciated. Thanks for taking your time once again to help me understand. Petro chem was good about getting the well operating expenses back to me as I sent them a certified letter on monday and they returned the information to me on Wednesday. Thanks to you and others I knew to send a letter and what to include in the letter to get back the information I needed from Petrochem.
Permalink Reply by The_Baron on July 23, 2010 at 3:04
LOE is lease operating expense. This is the cost to operate the well on a monthly basis, probally includes supervision.
Permalink Reply by Horseman on July 23, 2010 at 4:51
Baron,
Thanks for the information. It is greatly appreciated.
Permalink Reply by mike smith on July 23, 2010 at 8:38
Horseman, I am no expert,and have never been in a well operated by your operator but at 55 mcf day your well's gross revenue per month is about 6,000.00 before all the costs they can think up to charge you. I suspect the net is down in the 2-3k range and for someone whose business is operating, those numbers work. The real value of the well is likely the acreage it is holding if it is prospective for the HS as most of Beinville Parish is. If you were to have to buy those leases they would likely spend 640x 5000 or $3mm or so. Wonder if any thought has been given by the working interest to re-enter and recomplete in the Haynesville? That is where the value of that well is it seems to me. As is I doubt you will ever receive any revenue from it. You might see if the reentry is possible and of interest to the working interest.
Permalink Reply by Horseman on July 23, 2010 at 9:04
Mike,
I feel like petrohawk may have bought the deep rights to this section because much of it was held by production from the McCoy well. In 2006 many landowners signed with petrochem for 150 per acre and 3/16 ths royalty. Most of the leases had no depth pugh clause so this well would hold them by production. I'm really glad I didn't sign the lease with petrochem in 2006 because I would have the 3/16ths royalty and today 1/4 or 25% seems to be the way to go, I'm going to try to see how it goes being umi with a small parcel of land. I figure petrochem may have sold the rights to petrohawk because petrochem does not have the capital or knowhow to complete a horizontal haynesville shale well. Thanks for sharing your knowlege on this Mike.
Permalink Reply by Kat Bloomfield on July 23, 2010 at 9:00
my friend, you are getting charged for title, land, etc? Code doesn't say diddly 'bou that. Here's the probl with being UMI. It's not well-defined. The UMI is going to have to birddawg this stuff and then get a gun (a hired gun) to put up against the operator's head.
Permalink Reply by mike smith on July 26, 2010 at 9:27
Horseman, its interesting that you would suspect they sold the deep rights. They didn't sell yours since they had no lease on them. Given the recent court case in Desoto where a mineral owner successfully sued for the operator to develop a unit (now producing from a shallow zone as I recall) or drop it, (Maybe that had to do with unit size, I'm not sure) wonder what would happen if you proposed a Haynesville well be drilled. Interesting set of facts that gets more interesting the more prospective the HS looks in that unit. It would seem very difficult to argue "prudent operation" in the production of 55 mcfd on top of a HS prospect.
Permalink Reply by BirdDawg, plain ole' idiot on July 26, 2010 at 10:39
Pam,
The McCoy well is owned by PetroChem, as you know. There has been some discussion on this site as to the possibility of reentry and drilling to the Haynesville. This is not possible because Questar owns all depths in this unit, with the exception of the wellbore only of the McCoy well. All PetroChem, et al owns is just the "wellbore". Questar did not take ownership of any of the three wellbores in that area when they purchased from PetroChem, et al. But all PetroChem can do is produce those wells at the intervals they are completed at.
Permalink Reply by Horseman on July 26, 2010 at 18:17
BirdDawg,
If Questar owns all depths in this unit why would Petrohawk do a preapplication notice for this section? Just wondering?
Permalink Reply by BirdDawg, plain ole' idiot on July 27, 2010 at 0:43
Horseman,
Good question. I should have said that Questar owns all depths of the applicable leases that PetroChem had. Perhaps there were a good many leases that had depth restrictions on them, and maybe Petrohawk picked them up.

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