Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on January 8, 2015 at 11:59

You're welcome, Steve.  At one half the modern royalty rate the rock doesn't necessarily have to be Core/Tier 1 to be profitable with current drilling and completion efficiencies.  All the HS operators have to maintain cash flow so they will continue to drill where they get the best ROR. 

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Permalink Reply by Bobi Carr ("parker") on January 8, 2015 at 12:03

Skip,

  Do you think that is why there are so many Elm Grove field permits?  Or is it a combination of good royalty rates and decent rock?

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Permalink Reply by Skip Peel - Mineral Consultant on January 8, 2015 at 12:09

I don't know the royalty rates for Elm Grove lessors but it is entirely possible they have older leases and lower royalty fractions.  I don't think Tier 3 rock is sufficiently profitable even at an eighth.

Permalink Reply by Steve P on January 8, 2015 at 12:19

well, the 1/8th hurts me, but my guess is that BP is holding the other 1/8th, or close to it, and Comstock is still at 75% operating interest.  If this was a "farm-out" wouldn't that be how things generally work?  Perhaps my knowledge is too dates and there isn't a "how things usually work" formula any longer.

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Permalink Reply by Skip Peel - Mineral Consultant on January 8, 2015 at 12:25

Joint Operating Agreements and farm out/in agreements can be quite complex and the terms can change over time and/or under certain specific circumstances.  Too complicated to hazard a guess as it is far above my pay grade.

Permalink Reply by Andrew on January 9, 2015 at 2:15

Steve,

The working interest is the ownership of the lease and/or the right to operate, and is not the same as a revenue interest. WI will add up to 100%, even if it is split among different companies that own an interest in your lease, but the WI will get less than 100% of revenue because it still has to pay royalty (i.e. your 1/8th). A farmout is simply a way of transferring a working interest to another company. 

I don't know the specifics of your situation or a transaction between BP and Comstock, but here's a possible scenario that illustrates the difference:

From what you've described it sounds like you have a 1/8th royalty interest, or in other words, you own minerals that are leased at a 1/8th royalty. If so, and Comstock is the sole owner of your lease, then Comstock would have a 100% working interest and a 75% revenue interest. You would have a 0% working interest and a 12.5% (1/8th) revenue interest. If BP has 1/8th of something, it is most likely that BP has a 1/8th overriding royalty, which comes out of the WI owner's share of the revenue, not yours.

   

 

Permalink Reply by Spring Branch,mineral owner on December 18, 2014 at 11:29

Skip, if memory serves me, I recall that most of the Comstock Haynesville acreage is in the Logansport area.  If so, I'm not sure that Comstock's acreage is either core or Tier one.  Your opinion?

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Permalink Reply by Skip Peel - Mineral Consultant on December 18, 2014 at 11:34

Spider, Benson, Converse and Logansport in LA.  I think they have some E TX acreage also.

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Permalink Reply by Skip Peel - Mineral Consultant on December 19, 2014 at 4:04

It's unclear whether their leasedhold has CV liquids.  Those plays are conventional and limited in size.  The fields I list above are far south of the Indigo CV wet gas play.  I think it's much more likely that they will pad drill both Haynesville and Bossier shale CUL wells.

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Permalink Reply by Skip Peel - Mineral Consultant on December 19, 2014 at 4:59

I'll be the first to post it if Comstock starts drilling CV wells, Kathy.  Merry Christmas to you and your family.

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