Replies to This Discussion

Permalink Reply by The_Baron on November 23, 2008 at 4:47

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.

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Permalink Reply by shelby on November 23, 2008 at 5:06

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

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Permalink Reply by shelby on November 23, 2008 at 6:27

Thanks KB for the info on the payout process.
Shelby

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Permalink Reply by The_Baron on November 23, 2008 at 4:47

don't forget that the opertor will charge a montly supervision charge in addition to the expenses.

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Permalink Reply by Joel on November 23, 2008 at 7:21

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

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Permalink Reply by The_Baron on November 23, 2008 at 11:38

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.

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Permalink Reply by The_Baron on November 23, 2008 at 14:12

Nor did you get your bonus.

That is my point!!!!!

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Permalink Reply by The_Baron on November 23, 2008 at 14:58

the equivalent sale - drilling and leasing costs.

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Permalink Reply by mekat on December 2, 2008 at 12:33

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

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Permalink Reply by Snake Stewart on December 2, 2008 at 13:20

Neither are compression costs so far on the HS

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Permalink Reply by The_Baron on December 3, 2008 at 5:08

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.

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Permalink Reply by Grillin' - MmmMmm on December 4, 2008 at 7:26

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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