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Permalink Reply by Les Bamburg on February 18, 2011 at 3:48

Adubu, just realize most operators are currently receiving well above $4.00/MMBtu (probably $5.50 - 6.00) and the typical well would have a net revenue interest closer to 80% . 

 

Based on your scenario for wells with high declines, an initial rate of ~ 14 MMcfd would generate a reasonable return.  For lower decline, restricted rate wells an initial rate of ~ 9 MMcfd would generate similar a similar return.

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Permalink Reply by adubu on February 18, 2011 at 4:59

Les B --I was assuming  leases where mostly 25% R but you probably correct since a lot are HBP older leases with 1/6 to 3/16. The revenue of 5.50 - 6 the operator receiving must be due to contango in the future markets results of hedging. Will a 9 MMcfd IP return revenue fast enough to make it good investmwent to drill if assume price stay the same range for 5-6 years what ratio of return on money would they have?

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Permalink Reply by Les Bamburg on February 18, 2011 at 5:24

Adubu, the investments would make ~ 10% return based on a sustained $4 price but the return would be higher for a 20% royalty rate.  The return may not be spectacular but companies must maintain some level of drilling in the US to generate earnings.  Part of this decision process is where the Hyanesville Shale ranks against their other investment opportunities.  The answer is different for each company.

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Permalink Reply by adubu on February 18, 2011 at 7:15

interesting--with only 10% return drilling will slow--- so we need spot prices to get in the $6 range and stay for the Bossier and Haynesville shale since it is Dry Gas.

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