Replies to This Discussion

Permalink Reply by Dion Warr, CPL on December 4, 2008 at 2:35

Joel:

Whoa up... wait a minute.

Always remember that the $10 bonus you would have received on the lease trade also relieves the UMI of its share of the well cost.

For the sake of example, let's forget the monthly operating cost on this type of well. A single horizontal completion can cost between $6MM - $10MM (this does vary some from well to well, and operator to operator). Let's assume $8MM for the well for calculation purposes. At $8MM per well, the chargeable cost on your 1/10 ac. would be $1,250. How many additional wells, well recompletions, reworks, cleanouts, etc. are going to occur during that 30 yr. life span to effectively drain the formation under your unit to the 52 BCF level? I don't know.

I know as a landman that I have some natural bias, but something else that I have seen that gets lost in the discussion is that although the mineral interest owner has the right to capture the gas underlying their property until it is leased, very few individual mineral owners have the means to effectively do this.

Many landowners out in the country are willing to pay a few thousand dollars to have a service come out to drill and complete a water well on their property (to a couple hundred feet in depth) so that they can capture the drinking water underlying their property. Assuming that both the water well and the HS gas well are equal as being 'sure things', how is this any different? Why are the water well drillers not looked upon as being greedy for charging so much? Why isn't a landowner who enters into a contract with a tenant farmer in exchange for the farmer's payment of a nominal per acre rental and a share of the crop not looked upon as being greedy?

If spaced over thirty years, the collection of royalty versus revenue after payout, paperwork, correspondence, headache, etc., is the lease worth it? At 1/10 of an acre, this decision probably does not matter much. If you had 100 acres, it would matter a great deal, as you may be hard pressed to find a company that would drill a unit with that much unleased mineral interest to perform this 'service' for you.

BTW, to be fair, I think you are shorting yourself on total theoretical revenue. 52 BCF = 52,000,000 mcf = $339,960,000 @ $6.48/mcf; on 1/10 ac. this is $52,650. So the question should be (IMO): Do you take $10 + $13,162.50, free and clear of all well costs, and go invest it over the thirty years, or do you take $52,650, less probably half (a real guess on my part) to pay for anticipated well expenses (which more or less track with overall cost of inflation for oil and/or natural gas), coming in fits and spurts over that timeframe, and pray that your operator sticks around to see this all the way through and doesn't really screw up?

Bird in hand, two in the bush...?

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Permalink Reply by The_Baron on December 4, 2008 at 5:18

Well said...

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Permalink Reply by Bobi Carr ("parker") on November 23, 2008 at 8:03

Since the well is there and the operator has not given any incentive to lease, 3 months or 12 months isn't that long to wait.

I also think you did the right thing.

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Permalink Reply by RONNY on November 23, 2008 at 14:32

Or, you could notify CHK or their agent Twin Cities that you would like to lease for a better bonus. Start out at $20000 per acre bonus which would be $2000 for you upfront. If it is true and CHK doesn't want any partners and the well is producing in the range of their others, they should jump at the opportunity to buy 75% of your gas for a paltry $2000. If they stick to their lowball figure then be their partner and make them show you all the reports your entitled to. I believe before this HS has played out we will see some new guidelines and rules for the O and G's regarding unleased mineral owners. It may even come to pass because of lawsuits. The old days of hiding information and taking advantage of people are over. JMO

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Permalink Reply by Snake Stewart on November 23, 2008 at 16:11

Over-Riding Royalty Interest, I think. Or it could mean something nasty in Yidish. Cant always tell with this young lady ! (LOL)

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Permalink Reply by Aubrey C. Sanders, Jr. on November 23, 2008 at 16:20

If this were my property I would make them force pool it.

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Permalink Reply by Duncan McGehee on November 23, 2008 at 20:09

Tell them to send you an AFE (authority for Expenditures). You avoid the force intergration penalty and you pay your pro rata share for that well/unit. You get the numbers then. Probably 3 to 6 million range. .1/640 acres = .00015625. At 6mil your share of a 640 acre unit is $937.50, at 3mil $468.75 You the pay .00015625 of the costs and get .00015625 of the revenue.

This is all ball park only, but it should give you an idea of what their costs are and the share you would incur.

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Permalink Reply by The_Baron on November 24, 2008 at 4:22

If you consent, you are protected by the operating agreement and COPAS, but you need the cash to pay your bills, esp. before the well starts paying out royalties (if it does).

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Permalink Reply by The_Baron on November 24, 2008 at 5:11

I have one story for you KB. It was not in LA.

A owner was pooled into the well. The well produced a great deal of salt water. the water was disposed of in a nearby injection well owned by the operator.

The owner was charged a higher rate than the working intersts for water disposal. When the owner protested, The owner was told that this was the disposal price, and the price is non-negociatable.

However, the owner was given the option to set his own tanks, and his share of the water would be sent to those tanks, and he could haul off his own water (all equipment/permits/construction costs would be the landowners expense. Also he would have to get permision from the surface owner)

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Permalink Reply by The_Baron on November 24, 2008 at 5:35

Why not. The landowner did not share in the cost of building the SWD. Why should't the operator recoup their costs or even make a profit in building a SWD?

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Permalink Reply by Les Bamburg on November 24, 2008 at 5:26

Baron, my opinion is an unleased mineral owner (carried working interest owner) has all the same protections whether he consents or non-consents. There is really no reason for a carried working interest owner to consent and take on risk unless they intended to market their share of gas production.

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Permalink Reply by The_Baron on November 24, 2008 at 5:36

Exactly.

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