Haynesville Production Decline vs. Royalty Calculator Estimates

Shalers,

I hear that Haynesville wells are supposed to decline a great bit after the first year...but have wells been in production long enough to prove this?

When I go to natural gas royalty calculators on the internet they don't make provision for such steep declines, and I suppose the reason for not doing so is that they are set on 'average well decline'. Is there a place to go to estimate royalties from the Haynesville?

Thanks,
Jeff in Belgium

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Permalink Reply by Bill Fowler on April 21, 2009 at 1:10
Jeff - You can create your own calculator very easily in Excel. To get to 6.5 BCF EUR, I decline the wells at the following annual rates over the first 15 years: 85%, 50%, 40%, 30%, 25% for years 5-15. Then simply apply your gas price estimates and there you go. Bill
Permalink Reply by Skip Peel - Mineral Consultant on April 21, 2009 at 4:22
Bill. I am wondering where you came by your decline figures. They are considerably higher than any I have seen. I have been using CHK's of 81%, 34%, 22%, 17%, 13%, 11%, 9%, 8%, 7%, 6%.
Permalink Reply by The_Baron on April 21, 2009 at 4:46
CHK does have a way off taking an optimistic approach.

I know decline rates is a pet project of yours, and that data is limited, but have you seen any definate data?
Permalink Reply by Skip Peel - Mineral Consultant on April 21, 2009 at 4:59
Baron. No. That's why I am interested in Bill's figures. If the source was one with strong credibility, I'd average it with CHK's, as right now that's the best I can do. I have no great interest in knowing the exact numbers at this time and know that a year or more production from 100+ wells will begin to get us to an answer. In the meantime, I just want a good approximation to plug into models. My initial discussions on the subject were also motivated by wishing royalty owners to understand the relationship between the decline and their royalty income.
Permalink Reply by The_Baron on April 21, 2009 at 5:50
I have been interested as well, sometimes it is hard to just wait and see what is going to happen with these wells. I have been especially interested in what the big blockbuster wells will do over time.
Permalink Reply by The_Baron on April 21, 2009 at 7:42
Skip,

Look at page 10 on this new report.

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzMzMzk0...

it has a cute little decline curve for the first 240 days or so for HK wells
Permalink Reply by Skip Peel - Mineral Consultant on April 21, 2009 at 9:00
Baron. HK could be a little more definitive without claiming to have chiseled the answer in stone. It appears that the graph, if extended to 365 days, would equal a first year decline in the neighborhood of 75%.
Permalink Reply by Greedy Landowner on April 21, 2009 at 9:38
I read somewhere that they have restricted production on many wells due to the low prices. If this is true, wouldn't it skew the decline curve from the true potential?
Permalink Reply by The_Baron on April 21, 2009 at 3:32
Most of the internet calculaters do not account for decline at all. They just calculate based on the average production you insert.
Permalink Reply by JeffNParis on April 21, 2009 at 3:39
Thanks Bill and Baron...I'm 'Excel-challenged'. Can someone help me figure out what one acre should gross for 15 years with those kind of decline rates, a 25.0 royalty rate, gas at a reasonable market price and the average Haynesville BCF rate?
Jeff
Permalink Reply by Jon Williamson on April 21, 2009 at 6:49
Your royalty decimal should be about .00039 in a 640 acre unit. Use that to do the math. Figure maybe $5 for gas although it might be higher/lower. Here is an example using 300MMCF for a month from a good well. 300,000 x $5.00 = $1,500,000 x .00039 = $585 in royalty for that month. Use the decline percentages and just follow it out. This is a very rough way of doing it, but if the well paid you $585 every month the first year (it won't), during the second year it would be 85% less or $87.75 per month...just a back of a napkin way of getting you to what you want.
Permalink Reply by JeffNParis on April 21, 2009 at 6:55
Jon,
Thanks so much! That really helps.
Jeff

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