Replies to This Discussion

Permalink Reply by sesport on August 15, 2008 at 11:36

KB - I've heard the liability thing mentioned before in a neighborhood meeting. Can't find a source or info who can confirm this or explain how it could happen.

I believe the 3-5 yrs. came from a calculation based on pay outs on 8 wells per unit. I believe it was stated that @ about $7 million per well X 8 wells would = $56million payout before mineral owner would get paid. I'm still confused.

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Permalink Reply by Johnson on August 16, 2008 at 7:20

Les B says we will.....which one of ya'll is correct?

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Permalink Reply by Father of the Year on August 16, 2008 at 8:04

I believe well 1 revenues would be applied against well 2 expenses, etc. The later in the series you are, the shorter the allocation period. For example, well 2 would be supported by well 1 revenues, whereas well 6 would be supported by revenues from wells 1, 2, 3, 4 & 5.

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Permalink Reply by drillbit on August 20, 2008 at 13:39

Jim....are you sure about this?

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Permalink Reply by Les Bamburg on August 20, 2008 at 5:49

Johnson, my opinion was payout would be determined on an individual well basis but others believe payout is on a unit basis. I have not found any Louisiana regulation that would clarify this point.

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Permalink Reply by louisiana lady on August 15, 2008 at 14:21

According to the calculation that cost is about $11k per acre per well. At a 25% royalty some HS wells in Elm Grove are paying $1700/month/acre. That would make 8/8 pay $13k per month per acre, (less expenses) and that specific well paid off in 21 days. As to liability, the O & G has insurance, as a working interest owner, wouldn't that be covered under "expenses" and part of costs prior to payment?

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Permalink Reply by reg on August 15, 2008 at 13:36

This is bad information and here’s why.

If you don't sign and they put a well in your section that produces, it will be unitized. If you are a non-leasing mineral owner in that unit, then you will not get a royalty, you will be a PARTNER in the well.

Once the well pays off (Produces 6-7 million in gas), you will share in proportion to your mineral interest minus monthly costs on the well. The math works out in your favor. For instance: you and your neighbor have the same size lot next to each other and ya'll are approached to lease your lots for a 1000.00 bonus and a 25% royalty. Your neighbor leases and gets a 1000.00 bonus, then they get a monthly royalty check for 100.00for the life of the well when the well produces.
You choose not to lease and you don't get your bonus or a royalty, but once the well pays off its drilling expenses, you get 100% of the value of your minerals minus your portion of the monthly costs. So if your leasing neighbor is getting 100.00 on a 25% royalty, you would get $400.00 minus about $20-30 in your portion of the monthly costs.

It’s important to note the following.
If a gas well produces 5000 mcf per day (5,000,000 cubic feet a day), it produces approximately $50,000 dollars per day in gas (before severance taxes) IF gas remains around 10 per mcf. At that rate of production the well pays off 6 million in 120 days, not ten years. That's 4-5 months on average-- that's why our area is being flooded with money. These wells pay off 10 times faster than regular wells.

In most cases, if the well doesn't produce then you as a non-leasing landowner don't have to pay any of the the expenses and you only missed out on a small bonus. Of course all of these wells will produce-- the Barnett shale has had 10,000 wells drilled with NO dry holes. Their not all huge wells, but there have been no dry holes. You need to talk to an oil and gas attorney and not the land men when making a decision. The small acreage owner is better off not leasing-- read up on this.

More specifically:

A well produces 5000 mcf a day (this is an average HS well—average will be 8000-15000 mcf)
5000 mcf = 5,000,000 cubic feet a day
For instance, suppose gas is selling at $10.00 per mcf.
So, 5000 mcf x $10.00 +$50,000.00
Therefore a well producing 5000 mcf a day will bring in $50,000.00 per day.

If the well costs $5,000,000.00 to drill, then it will take 100 days at $50,000.00 for the well to payoff. That is why the statement in this article is NOT TRUE. It will not take 3-5 years to reach payout.

Also, after severance taxes this well will net about $45,000 per day.

So $45,000.00 divided by a 640 acre unit gives you a per acre per day value of $70.31 per acre/per day.

For the leasing land owner of 10 acres:

Then take that number times your royalty. Assume you have a 25% royalty. This means you would receive $17.58 per acre that you owned in the unit.

So if you own 10 acres you would receive 175.80 per DAY! Or $5,274.00 in a thirty day month.

For the non leasing land owner of 10 acres:

However, if you don’t lease your ten acres, you would receive $703.31 per day once the well pays off in approximately 100-120 days. That’s about $21,099.30 per month.

Of course, any reasonable well costs will be deducted from your $703.31. So if the monthly well costs for a given month was $15,000.00 then take $15,000 divided by 640 acres in the unit times your 10 acre interest in the unit to determine your part of the MONTHLY COSTS. $15,000 divided by 640 = 23.44 x 10 acres = $234.40. So, your $21,099.30 check will have a 234.40 deduction for your part of the costs. Even at $100,000.00 a month in well costs your 10-acre portion would only be reduced by $1562.50.

So the advantage for the landowner is to not lease. This statement is completely false and the news channel should immediately retract it.

BTW—did this fast so if my math is off let me know J

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Permalink Reply by ETOilman on August 15, 2008 at 15:33

what if no one leases?

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Permalink Reply by reg on August 15, 2008 at 16:17

I think everyone should lease. I share the calculation only for the person who has not leased and may be the last holdout in their section, that person does not need to lease.

What I disagree with is telling mineral owners any of the following to force them into a lease:

these wells won't pay off for years.
there will be many dry holesin horizontal drilling.
if you don't lease and the well doesn't pay off, we will send you a bill for your portion of the millions of dollars.

These threats are not accurate for horizontal drilling.

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Permalink Reply by reg on August 16, 2008 at 7:36

What's wrong with landowners getting accurate information about their mineral rights and using that information to form a group and market their unit to XTO or some other company in the Barnett Shale.

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Permalink Reply by John on August 15, 2008 at 15:45

Have you checked the Nat Gas price per MCF lately!?! do your fuzzy math on $10.00 per mcf all you want. Also, don't sign a lease. Don't get a lease bonus. Watch all of your neighbors get a bonus, draw royalties, watch gas prices drop to a level where it is not economical to continue drilling these 8 to 10 million dollar wells and never see a well pay out.

Or in the alternative, get off of this web page with all of this I am not going to lease / they are taking advantage of us banter, and drill your own $8 million dollar well, lay your own $500k pipeline, and market your own gas.

Good luck

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Permalink Reply by ETOilman on August 15, 2008 at 15:49

thank you john

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