Replies to This Discussion

Permalink Reply by DYST_JP on August 11, 2008 at 2:07

KB why don't you start one, or I can. It would be interesting to hear what people think about this.

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Permalink Reply by MB on August 11, 2008 at 1:37

Shale, OK TX. We do, in fact, have to make a lot of assumptions. And simply: To know the future would mean no guesswork or judgment calls involved wrt our decisions. Appreciate the diligence you bring. Best, MBG

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Permalink Reply by Dion Warr, CPL on August 11, 2008 at 2:23

Group:

Please don't forget that you also have to make up the prospective bonus payment you would be turning down when calculating your "breakeven" scenarios as a unleased mineral interest owner (UMI).

So if your turning down $15K/ac. and 25%, and the horizontal completion costs on the well are $8MM, your "breakeven" (including the rejected bonus) is going to be around north of $20.2MM of gas produced (in a 640 ac. unit). In a good well, that may not be a hard milestone to reach, but not all wells are good wells.

Also, wells are always subject to operations and maintenance costs, and sometimes wells need a good wireline treatment or frac job. UMI has to pay its share of those costs, too.

Now, after all that, you are "breakeven" with the leased owner. And your revenue is 4 times greater than at 25% RI. Unless the operator needs to rework, or drill ANOTHER well.

Just some things to consider as a "holdout".

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Permalink Reply by Gone Fishin on August 11, 2008 at 3:04

Are these calculations for just one well or for maximized well per acre spacing. I see all these calculations are based on conservative #s.
can you calculate it on the max. and what is the projected revenue and lifespan of the wells. It would be curious just how many millions of dollars difference there is. estimated of course.

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Permalink Reply by Dion Warr, CPL on August 11, 2008 at 3:21

The answers to these questions I would cede to the geologists, or a reservoir engineer. It's their job to project recoverable product, depletion rates, etc. Having good stats in this regard would greatly assist in calculations.

My calculation is based upon one well, and assumes that you would attempt to recoup your "missed" bonus payment on the first well. A little less than half of that "breakeven" figure ($9.6MM) is just making up the bonus, calculated at $15K per acre on a standard section (640 ac) unit. The well cost is based upon horizontal completion, which would appear to be preferred over 3-4 vertical completions, as far as feasible production rates (you agree, Jay?). Each new well would be "paid out" separately. At $8MM per horizontal completion, this would work out to an additional $10.66MM of gas production that would have to be made up for each additional well.

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Permalink Reply by The ShaleRider on August 11, 2008 at 4:10

In my scenario for the bonus/leased landowner, I put all the bonus in a CD for 6 months...made 3% (='s 6% per year) and added that to the net bonus amount before I had to give Unc Sam his 40% in taxes 6 months later. However, I am pretty certain MOST landowners would not put ALL of a $200,000 bonus in a CD for 6 months...they would be spending at least part of it. :-) I tried to think of most of the details, but I still apppreciate your insight.

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Permalink Reply by Dion Warr, CPL on August 11, 2008 at 4:31

Shalerider:

I always try to bring the consideration up when folks start doing the "to lease or not lease" question, although usually it's not as significant of a factor as it's become in the HS. Usually the bonus is little more than "the ante" when it comes to putting together overall costs of prospect. The money to be made usually is in the royalty. And for most people living on or working their property, the costs of "living with the lease" also has to be considered, which is a very individual thing. For a lot of folks in NW LA, that's a big cost.

Your comment brings up the very big issue in that some folks have just received a HUGE stepup in income, and Mr. Taxman cometh at the end of the year.

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Permalink Reply by insomniacnla on August 11, 2008 at 5:30

Shalerider,

For most landowners that receive a large signing bonus, the tax on the bonus will not be due at the end of the year. You will have to make an estimated tax payment which will be due at the end of the quarter in which you receive your bonus. If you wait, the penalty that you will be assessed will exceed the interest you will make in your CD.

Don't just go by my post, everyone's situation is different, but you do need to talk to your tax advisor if you receive a large lease bonus.

I thought the same thing as you, keep the money until April 15 and draw interest on it until you pay your taxes. I met with 2 different CPAs who informed me that the tax on the lease bonus will be due when I receive the bonus. Uncle Same will get us either way.

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Permalink Reply by The ShaleRider on August 11, 2008 at 13:14

Thank for the info!

However, this just reinforces the above example's main jist: that in the above example with all my relayed "reasonable" assumptions (I guess this one was not reasonable :-) ), that the non-leased landowner's proceeds will catch and pass the leased owner just a few days faster. The 3% interest did not really add much padding timewise.
:-0!

Pale- no ... ShaleRider

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Permalink Reply by kenney murphey on August 11, 2008 at 4:33

petro hawk just issued 25,000,000 new shares od their
stock to rasie capital. it is trading at$26.+ per share
that is $650,000,000. yes that is million.

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Permalink Reply by Bill G on August 11, 2008 at 4:38

I also know of a Large deal HK backed out on Thursday due to capitol reasons.

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Permalink Reply by Ron Blewer, Jr. on August 11, 2008 at 5:17

I don't know if this is related, but Petrohawk just filed for another share offering

http://biz.yahoo.com/prnews/080811/lam047.html?.v=101

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