Replies to This Discussion

Permalink Reply by Snake Stewart on July 26, 2008 at 15:37

Amen !

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Permalink Reply by Cooper on July 26, 2008 at 19:15

It's my understanding that the company leasing only needs to lease a certain percentage of the land in a unit. I've heard 75% and I've heard 85%. The thing is, if you DO NOT lease, then you still get royalities from the production. You would not received them as soon as someone who leased, but once the well was paid up you would get 100% of your portion of the unit. Those that are leased are only getting 25% of their portion. That's why they go after the big landowners first. Now the parishes and cities are getting into the act. They own much more land than the average joe. The O & G companies are not going to lease more than is required. But the good news is you end up with more royalties. Or so this is what I've been told.

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Permalink Reply by Snake Stewart on July 27, 2008 at 2:05

Hello Cooper , I agree with you as to them not having to lease everyone but I have to disagree on them leasing anymore than is required. They only have to have a majority. That being said , how come they want the whole section ?
Pure economics . They can't afford not to try and lease you ! Too much money involved .

In the past on slower producing wells , O&G's could eat up enough production with bogus fee's and charges to maybe keep an unsigned person from ever seelng a royalty check. That isn't the case with some of these monster wells on this shale. When a rig is producing $224,000 a day , it wont take long to pay for itself at all. Then they dont have a lot of choice. Even with those same bogus fee's and trumped up charges it will be difficult to keep from having a payout , even if a person own's just 1 sqare foot of land on this shale ! He will still get paid. Theres too much value in the ground for even the biggest waster and overpriced fee charging goons in history to hide it all ! Not to mention all the watchdog groups hovering over the backs of O&G's ! Hired by all these new millionaires to watch their profits and to make sure they are getting whats coming to them. I liked reading your take on this. Have agreat day.

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Permalink Reply by Randy on July 27, 2008 at 4:14

Snake, I am going to go play devils advocate with my boss on this very question to see what his take is on it. Will report back when if I get a different answer, but yours is probably very true.

Even assuming it will be based on unit-payout and not well-payout.
In the country if everyone didn't lease they just wouldn't drill, too many landowners for that to be the case here. It's a given that everyone won't be leased.

Randy

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Permalink Reply by Les Bamburg on July 27, 2008 at 6:16

SS, I don't know where you come up with these numbers but the $224,000 is way off. A typical well will produce about $50,000 per day in revenue in the 1st year and average ~ $24,000 per day in the 1st six years. These values are before expenses and other costs.

By the way, an unsigned mineral owner does not get royalty checks but rather revenue less expenses. I know this is being picky but I think the use of the royalty term causes confusion.

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Permalink Reply by Snake Stewart on July 27, 2008 at 6:26

Well Les B , then what exactly is 16.8 Mmcf X $13.35 mcf a day equal to ? These are not typical wells and I for one will not be led down that street. I respect your opinions as they are a wealth of knowledge but when the numbers are finally given out by the O&G's it is almost ridiculous for you to try to dispute what your own CEO's are saying. This is no ordinary play and is breaking all of the rules. Thank you for your posting but I do challenge you to show me on paper where my numbers are way off. Have a good day.

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Permalink Reply by Les Bamburg on July 27, 2008 at 6:52

SS, my calculations are based on an initial rate of 10 MMcfd because this may be more typical. The Petrohawk well used 11 frac stages rather than the typical 5-6. As more information comes forth I may up that closer to 15 MMcfd but some other wells with public data were 5-10 MMcfd. As far as price, gas sold in NW Louisiana does not get Nymex (or Henry Hub) values. Most gas is sold on a monthly basis rather than daily basis and the netback to NW Louisiana production would currently be ~ $8/MMBtu. That price will have some downward pressure in the near term as HS production ramps up and exceeds available pipeline capacity. Finally data from other shale plays shows how wells decline rapidly (up to 70%) in the first year before the decline levels off. I used 56% for the 1st year based on some consultants estimates.

The bottom line is the wells will still pay off very quickly. I just think people get the idea wells produce at a constant rate for many years and this is just not the case for shale plays (or other non-conventional plays). Also, people look at the Nymex gas price and believe this is what producers get at the wellhead which is not the case. It gives a directional indication but there are a lot of adjustments to get to a specific field's gas price.

I hope this helps as individuals need to understand these issues and include in their evaluations. By the way, my company has no involvement in US gas production or the Haynesville Shale so I have no dog in the hunt from that prospective. My personal interests are on the mineral owners side. I just try to inform where I can although it would be much easier to say nothing.

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Permalink Reply by Randy on July 27, 2008 at 7:04

As Les is trying to explain, everyone is using the wrong pricing for NG. It is price at the wellhead, which is around $8/mmbtu.

You also aren't factoring in any costs associated, transportation, collection, pooling, compression, etc.

Thats like saying Walmart bought this for $10 and sold it for $18 they made $8.... Unfortunately they have to pay rent and utilities and labor and taxes and insurance...etc

Randy

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Permalink Reply by insomniacnla on July 27, 2008 at 8:15

Randy,

What is throwing some calculations is that the price of NG spiked up the last couple of months to over $14.00 so the wellhead price was MUCH higher than it normally was for a couple of months. The futures price for NG has dropped back down again to $9 something and that will be reflected in the royalty checks soon.

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Permalink Reply by Les Bamburg on July 27, 2008 at 7:55

Earl, that is a good 1st attempt. One adjustment you need to make is the well would decline during the first year and average ~ 70% of the initial rate. Year 2 would be ~ 52% of Year 1, Year 3 ~ 77% of Year 2, etc.

Your average gas price may have been reflective of the specific production's heating value (Btu/Scf) and any gas processing uplift. Depending on the gas formation this can vary quite a bit. I have not yet seen any composition data for the HS so not sure how that will rate.

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Permalink Reply by Snake Stewart on July 27, 2008 at 8:21

How many Haynesville Shale decline reports are out there for the consultants to glean from ? According to Brother Floyd at the HK , these wells could actually get better! I don't have any idea, Im just a blogger. If he doesn't have a clue maybe you should tell one of your supervisors to look into it.He may need replacing.They are all choked at this point. Maybe thats what he was talking about.

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Permalink Reply by Randy on July 27, 2008 at 8:24

:) Sounds good to me.

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