David Smith

DS, I have sent you a "Friends" request. This may be the best way to communicate.

David, in my past I worked for a major O&G company with primary experience in natural gas development, production, processing and transportation. My current company has no involvement in production but I monitor the development of non-conventional gas plays such as the Barnett, Fayetteville and Haynesville Shale.

David, the $1000 per acre each year was based on a 25% royalty.

I would say your acreage location would have low potential for any shallow production. The closest production would be in the Grogan Field (T11N - R11W)

David, sorry about the delay in responding to your request. No, I think the annual income should be more on the order of the $1,000 per acre with one well.

As you stated a full valuation would be based on discounted future royalty payments plus the upfront bonus, of course.

David, I am not familiar with the shortcut method for valuing future royalties. I think you just have to estimate future royalty payments and do a discounted cash flow analysis. A 25% royalty may generate an NPV of ~ $15,000 per acre for each well drilled in the unit.

David, here are my thoughts regarding your spreadsheet. First, the horizontal shale gas wells generally decline rapidly in the early years with the decline slowing to a stable rate in the 5th year. Likely decline rates are Year 1: 56 - 73%, Year 2: 27 - 36%, Year 3: 18 - 24%, Year 4: 12 - 18%, Year 5: 8 - 10%.

Regarding gas price, production in DeSoto Parish would receive less than Henry Hub (Nymex). Current pricing would be ~ $8/Mcf. Also, I would escalate at a lower rate than 5% (maybe 2 - 3%).

Les,

I didn't realize there were enough horizontal wells that had been drilled to make these kind of projections.

I didn't consider the costs of transport from DeSoto to Henry Hub.

Umm, about escalation, I don't know. I just tend to think that energy prices are going to rise faster than historical inflation.

I got a quick offer yesterday for $10,000/acre for my royalties. It was so quick I have to think they're worth much more.

David, the 52 Bcf of gas per section is heavily related to the long producing life of 30 - 50 years required to recover the reserves.

Les, I took that analysis out 30 years. Here's a 50-year scenario.GasLeases2.xls

Yes, the $76,204/acre is the present value of an acre under a 25% royalty lease to an owner (or buyer), assuming the well produces for 40 years in those amounts and at the prices indicated. If the well were to dry up after 35 years, then the present value would be $70,422/acre.

Hi David,
Have you received any offers other than the $10,000. per acre?

Hi David,

Have you done any of your spread sheets lately. I never could view the one you prepared in excel.

Have you seen the discussion about Chesapeake buying minerals thru M.C. Minerals for 16,000 to 22,000 per acre?

I am considering selling some of mine.

Do you still feel that each acre is worth $76,204 present value?

THANKS,
PARKER

I remember your posting that you were an Appraiser. I thought there might be some sort of valuation process. I'm in the boat with you as far as being poor.

Mine is in S. Bossier, a few miles from the Petrohawk wells. I have 280 and some other misc. tracts.

Hi David,

Yes they have are in the process of unitizing it right now. I've heard good things about JW Porter so I imagine that you will be well informed. Hopefully you are not leased to Cubic. Jay and many others are extremely disappointed with them.