Replies to This Discussion

Permalink Reply by Gone Fishin on August 10, 2008 at 15:08

I agree. We are considering going in partnership with a small drilling company instead of leasing. It may be a better option for us land owners with enough land to drill on. I think the big companies like cpk and devon are going to drill enough to hold the leases. They dont intend to flood the market. The name of the game is proven reserves. Thats how they can sell it to companies like PXP and get top dollar.

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Permalink Reply by The ShaleRider on August 10, 2008 at 15:51

Req...
I am not an O&G person but I am a statistician...so my math skills are decent. Your math in the above post IS accurate, for I have been thru the same calculations "by hand" that you have above. Also, with the information that I have seen on the production of the HS wells, your example of 5 MMcF is fairly conservative. Additionally, I believe that the price of gas has declined slightly to ~$8.50, right? Still your numbers in general are on the conservative side. What I do not know is what the monthly well production overhead is for horizontal drilling. Where could we verify your figure of 10-15% or can you relay what you are basing this figure on? Otherwise... your post is an eye opener for us small acreage owners.

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Permalink Reply by bullbayou on August 10, 2008 at 16:08

you had better put the price of a completed well at closer to $10 million dollars, and you forgot to take out the 25% royalty to other mineral owners who leased. And the cost to operate these wells will be monstrous. Not as good as you think

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Permalink Reply by MTA on August 10, 2008 at 16:22

I don't think that you would take the 25% royalty out of an unleased mineral owner's profits. He would get 100% of the profits of his acreage and the costs should not include the royalties paid on the rest of the leased acreage in the section. Correct me if I am wrong on this.

As far as the 10M and the operating costs, I have no idea, but would love to hear other's opinions.

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Permalink Reply by drillbit on August 10, 2008 at 16:38

Your source please for the need to take out 25% royalty to other mineral owners who leased.

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Permalink Reply by Snake Stewart on August 10, 2008 at 17:13

Isn't the $6,000,000 Uncle Floyd said it would cost overinflated enough. These guy's need a little fiscal responcibility check , especially if I am going to be their partners.

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Permalink Reply by CMI A1 on August 10, 2008 at 17:18

I challenge the cost of well being at $10 million. That is not what is being projected by O & G. Even the BIG wells that have already been drilled have not risen to those cost.

And no, you don't subtract out the 25% to other mineral owners. That has nothing to do with another unsigned mineral owner. O & G does not subtract that amount when calculating cost. An unsigned mineral owner will receive 100% of revenue off of the well production after cost deductions.

And yes... in some instances, it could be better for some mineral owners to NOT sign.

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Permalink Reply by Snake Stewart on August 10, 2008 at 17:24

We need some "Raid". This place is crawling with bugs.

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Permalink Reply by Bacon on August 11, 2008 at 3:46

You need to price the gas at "wellhead" price. It's usually a couple bucks less.

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Permalink Reply by MB on August 10, 2008 at 16:40

Req/Shalerider, appreciate your comments and calcs. I do wonder about the TVM calcs, though; e;g;, what happens if the o/g companies wait for several years to drill on a particular piece of property. In that case, a bonus right now looks much better. Your thoughts? Respectfully, MBG

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Permalink Reply by The ShaleRider on August 10, 2008 at 17:38

I just proposed 2 scenarios on an Excel spreadsheet where the above royalties, well output, and production costs of 15% were assumed and also assumed a "today's proposed going rate of $20K/acre" for a signing bonus on 10 acres. I also assumed that one person had signed and another had not and that the well was not operating until 1 year later. I also allowed an additional 6 months for the well to be making a net profit and thus before the nonbonus land owner received the first proceeds. I know this is a lot of assuming, but there's not much way to do ANY comparison at this point without making some reasonable assumptions and we don't have hard numbers to work with. With these scenarios, once the well is operating, it only takes about 15 months for the nonbonus landowner to surpass the bonus-paid landowner in net profit. And the profit from then on for the nonbonus land owner is about 4X's/month the amount of the bonus-paid landowner.

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Permalink Reply by Snake Stewart on August 10, 2008 at 17:44

Thats as strong as fresh mowed garlic ! Good work.

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