Replies to This Discussion

Permalink Reply by sesport on November 27, 2008 at 15:22

GD - I didn't have any problem with the link, and I'm not signed up with NYT. Try looking for the same article under AP's website.

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Permalink Reply by David Smith on November 27, 2008 at 15:28

Sign up with the NYT. It takes about one minute. Don't be afraid. You won't get commie cooties or anything.

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Permalink Reply by sesport on November 27, 2008 at 15:42

Mr. Krow - funny thing is before I read your post, I looked at the article & copied the same thing you did.

"Chesapeake said it's negotiating with several ''significant'' leaseholders to acquire leaseholds at reduced prices. In the filing, it said some leaseholders may agree to accept common stock for all or part of the deal."

Now, in light of what we just read Citi did in that swap with Nikko, do you really think it would be wise to swap for stock? Lessor may own part of the company, but would it be a controlling interest? People can believe in the HS, it's whether or not they believe enough in CPK to gamble they will be around long enough to get the job done. Not my cup of tea if I were that "significant" leaseholder.

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Permalink Reply by Joel on November 27, 2008 at 16:14

I do not suggest anyone worry about 'capital gains' by holding on unless they believe the investment itself is a buy and hold for investment anyway. It can be foolishness to lose big money agonizing over a few percentage points of tax. I was in Silicon Valley and watched underadvised people exercise options in the internet bubble, and hold the stock 'to avoid taxes' and well before their capital gain year was out, the bubble burst.

If you are confident that Chesapeake is a good bet, and if the amount of money at risk is something that would not change your life either way, then lower tax is a good thing. Do recall the stock market has swung 40% down in a relative heartbeat. CHK is down what, 70% since August. This game is not for the faint of heart.

The price of CHK is somewhat tied to price of gas, which is (guess what) also tied to the value of your eventual royalties. So, you are already 'long' the price of gas if you have gas under your property. If you were to take stock instead of cash bonus, and the price of gas goes way up, you'll make money on the royalties and, probably CHK. If it goes down, you get hit both places hard. In other words, feast or famine. If you got cash and invested in something that didn't move so closely with gas, then in some scenarios your other stuff could be up when gas was down.

Do consider diversifying your assets....

Best,

Joel

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Permalink Reply by linda on November 27, 2008 at 17:34

As of 11-21 Chesapeake had a total of 34 wells in LA and ARK. Dont know how many they have running in other parts of the country so I dont see how they can be in dire financial trouble.

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Permalink Reply by P.G. on November 27, 2008 at 19:08

What would happen to royalty money if they didn't have enough to cover it after marketing the gas?

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Permalink Reply by sesport on November 28, 2008 at 8:37

Are they actually already marketing HS gas? I've read we don't have big enough delivery pipeline yet, haven't heard anyone say first wells are paid off & they're being paid royalties, I've read the wells are on choke. With gas prices down, are the companies actually producing & selling?

As far as your question ... I'm understanding there is no royalty money until wells are paid for, all money from marketing goes to pay for wells & operating first.

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Permalink Reply by sesport on November 28, 2008 at 9:12

Thanks, GD, for sharing that info. I'm not in O&G business, not even as a lessor yet, so I'm trying to wrap my brain around all this.

My understanding is that all the horiz. wells will need larger diameter pipeline for delivery because of pressure. Are the vert. wells different, able to be delivered in pipeline we now have? Can/will operators be delivering what they most recently drilled here? Is "your" vert. as productive as that horiz. will be once it's producing?

My intent in replying to the question about royalties was based on what I know to be all the variables that affect royalty payments. Thanks for the additional info about your experience.

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Permalink Reply by insomniacnla on November 28, 2008 at 11:18

From information posted on Sonris, it appears that there are at least some pipelines already in place for Chesapeake's wells because production has to go somewhere.

I was calculating production figures to come up with a huge GUESS as to what this type of production may mean to a landowner with 1 acre and a 25% "no cost" royalty lease. I know that there are other costs that may need to be included in my calculations, but this is only a GUESSTIMATE. Even though the Sonris site does not reflect what price was paid for the natural gas produced, to me it seems a safe bet if I use $6.00 per MCF to be onl the low side of the price.

Here it is and I hope I don't screw it up too much:

Serial No. 237384
Sec. 27, 15n 15w
291,985 MCF production for the month of July, 2008 this would total $1,751,910 for that one month of production. If a landowner had a "no-cost" royalty percentage of 25%, the amount per acre paid for this production would be $684.34 for 1 acre


Serial No. 237457
Sec. 7, 15n 14w
256,525 MCF production for the month of June, 2008 and 160,852 MCF produced for July, 2008 this would total $2,504,262 for the 2 month period of production. If a landowner had a "no-cost" royalty percentage of 25%, the amount per acre paid for this production would be $978.23 for 1 acre

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Permalink Reply by sesport on November 28, 2008 at 17:36

GD & insom - Thank you both, it's becoming a little clearer now.

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