I have read a lot on here and it clears up some questions, but I wish someone could tell me what to expect here.

My M-I-L owns a very small, .1 acre lot, in Keithville. The land was never leased, but now CHP has a well under it, on line and producing . I talked with her neighbor and she said, she got a letter from CHP saying that in January they would receive papers explaining the royalty payments they could expect to start getting soon. A land man representing CHP called me this week wanting to lease the property for $100 an acre, so she would get ten bucks and 25% royalties. I just told him no, force pool her. Now I don't know what I have done.

Will she get more royalties being forced pooled?

Am I right she won't get anything until the well is paid for?

We don't have any paperwork with CHP now, what can we do to make sure she gets something?

I just thought with only a 10 buck bonus, it might be better to just wait it out and see if she wouldn't come out better this way. This is the well off the Mansfield road near the Keithville cemetery. T16 R14 S28 i think

There isn't enough to made off this tiny property ether way to justify going to a lawyer, so I am coming here to seek what ever advice you all might have to help her get as much as she can.
Thank you for all help.

Tags: force, pooling, royalties

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KB,

I am not trying to pick a fight or destry your statement, but payout can take years if ever.

My calculations show that a typical CHK HA well could take 8-12 months to payout, maybe more.
Baron,
Barring they drill a dry hole, and if pay out begins on successful HA well, under what other circumstances would your "if ever" scenario fall into play; seems like payments would be assured upon each producing well.
From reading comments from KB, am I right in assuming that upon each wells completion, and being brought on the sales/production line, that revenue payments begin being paid out to the "non-leased" landowner at that time.
Is it incorrect, that a complete section/unit has to be drilled out before landowners are paid their proportional per acre share in revenue?
Thanks for any insight that you can provide.
Shelby
Thanks KB for the info on the payout process.
Shelby
don't forget that the opertor will charge a montly supervision charge in addition to the expenses.
Gee, that seems like a lowball per-acre offer, especially for acreage covered by an existing well... The lease offer provides $10 up front in exchange for 3/4 of your gas. Let's see how it looks with some back-of-the-envelope calculations.

If you believe the numbers bandied about there are 52 Billion recoverable cubic ft of gas per square mile. Also, 1/10th acre is 1/6400th of a square mile.

so 1/10th acre would have about 52,000,000,000/6400, or 812,498 cu ft recoverables (or 812MCF) At todays prices about $6.48 per MCF that would be worth about $5,300 if it magically all came up now (vs. coming up over a well's maybe 30-year life), and was sold at today's prices (and prices fluctuate widely). Lots of ifs, but that's a ballpark number.

Not to put too fine a point on it, but $10 in exchange for 3/4 of your $5,300.00 worth of gas seems pretty low. FWIW, I think you did the right thing.

Best,

Joel
Its a bonus for getting a chance to get to share in production risk free.

When you lease you pay no expenses to the well, even if it is a dry hole.

besides, its nobodys gas until it is brought to the surface and reduced to possession.
Nor did you get your bonus.

That is my point!!!!!
the equivalent sale - drilling and leasing costs.
Yes but, the well costs about $10 million to drill, complete, and hook up to facilities and pipeline. 1/6400 would be $1562.50. Also, the operator is taking on all the risk of drilling a dry hole or maybe more likely a serious mechanical problem.

Then take into account that the remaining $3737.50 is revenue produced over the next 20 to 30 years (after a 9 month payout - low gas price and a very expensive well here!) and the cost to operate is $2000 to $4000/month (lets say $0.50/month for the 1/6400 share over 20*12 months = $120). Now take out taxes, compression charges (shrinkage and other BTU adjustments), marketing and price risk, and you can see where size starts to make it much more worthwhile.

CHK's hedging is likely not going to apply to other WIO's gas and gas balancing where the operator produces thier gas first, lessor WI's later has been known to happen when supply exceeds demand. Liability (spills, accidents, plugging) is also an issue.

By the way, COPUS is the contract that specifies what reasonable and customary charges for supervision by the wells operator should be although actual charges are often less and an operator may choose to charge less. CHK always charges COPUS rates.

Leasing is not necessarily a rip off, but in this case where only a token bonus amount was offered I would have probably done the same and turned it down. Once a successful well has been drilled it should be worth more than the typical Bonus. On the other hand, a 25% RI NOW (as opposed to maybe one in 5 years) is pretty rich and you get the benefit of their hedges.

You might go back and ask for 30%. considering that the well is already drilled and there is no risk of a dry hole and CHK is cash poor right now and consider that her $1500 share of the drilling and less paperwork/liability/hassle...etc. plus $10 is the bonus and she could start getting checks sooner.

Good luck with it,
Kat
Neither are compression costs so far on the HS
So far. It would be resonable to assume that all expenses to prepare the gas for market will be passed on. I have also heard there is a need to treat some of the gas for H2S.
Kat: you are right; CHK's hedging won't apply to landowners gas. Most of these hedges are financial transactions not necessarily tied to a specific molecule of gas. So they settle out the hedge contracts on a higher level not at the well level. Most, not all.

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