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Permalink Reply by Les Bamburg on September 4, 2008 at 18:26

William, the following are opinions as no long term data is available.

Wellhead price more likely to be $8/MMBtu.
The well will not average 15 MMcfd as the 1st year decline is ~ 70%. After 18 - 24 months the production decline will flatten at ~ 3 MMcfd.
Economics are not likely to support downspacing below 80 acres for horizontal wells.

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Permalink Reply by Shaleguy on September 5, 2008 at 4:35

First of all, Petrohawk has only released the figures of two wells, not three. The 20.1 well is actually the 2nd well (the production changed slightly after going on production). The 3rd well hasn't been completed.

2nd, the wells will decline rapidly. That 20.1 well might average around 6 or 7 for the first year and 2-3 after that.

Third, that $10 price is too high. With all of this Shale gas, prices are probably going to be in the $6-7 range going forward. Goldman Sachs just dropped their price forecast for next year by 20%.

In other words, I wouldn't get your hopes up for that $30K per month royalty check for 1 acre.

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Permalink Reply by Bill G on September 5, 2008 at 5:00

Aftef the first year.....once the well is paid for and the peak production has stabled out I would estimate between $115.00 - $200.00 a month after Taxes! This is a high estimate...based on 1 productive well...at 4 mmcf a day with Gas prices around $6 per Mcf...so you better not go out and buy a new sports car just yet buddy!!!! I doubt you will see them drilling 80 acres spacings when they are trying to secure 3 Million acres of productible land!!!

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Permalink Reply by Bird on September 5, 2008 at 5:16

What about a clause of bump up to 30% once the cost of the well is recovered?

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Permalink Reply by Ringgold Redskin on September 5, 2008 at 9:09

Here is seven months production from a vertical well and 8 months production from a Horz and the vertical combined. A steep decline curve! Chesapeake has actually permitted a third well in this section in August.

234022 HA RA SUA;SRLT 29 Well#001 CHESAPEAKE OPERATING, INC.
JOHNSON BRANCH Caddo Parish 029 16N15W
COMPLETED 3-2-07; GAS,
HAYNESVILLE, 231 MCFD, 48" CHOKE, 125 TP, 290 CP, 11284 - 11458 PERFS

1980' FSL & 1750' FEL OF SEC 29.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
235717 HA RA SUA; SRLT 29 002-ALT CHESAPEAKE OPERATING, INC.
JOHNSON BRANCH Caddo Parish 029 16N15W
COMPLETED 10-10-07; GAS, HAYNESVILLE, 2647 MCFD, 18" CHOKE, 1570 CP,
11600 - 15824 PERFS Vert Depth 11315' TD 15930'

1720' FSL & 330' FEL OF SEC 29. PBHL: 544' FNL & 1229' FWL OF SEC 29
++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Report Date Well Cnt GAS PROD(MCF-Month)
05/01/2008 2 26410
04/01/2008 2 26797
03/01/2008 2 31285
02/01/2008 2 32249
01/01/2008 2 42994
12/01/2007 2 58847
11/01/2007 2 70878
10/01/2007 2 60228
09/01/2007 1 118
08/01/2007 1 1621
07/01/2007 1 1429
06/01/2007 1 1280
05/01/2007 1 2274
04/01/2007 1 2701
03/01/2007 1 6520

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Permalink Reply by SBossierGuy on September 5, 2008 at 9:28

According to a Pickering Energy Partners study, the decline curve in the Barnett Shale is as follows:

Horizontal Well:
56% decline after year 1
27% decline after year 2
18% decline after year 3
12% decline after year 4
8% decline after year 5 and every year after

Vertical Well:
63% decline after year 1
23% decline after year 2
18% decline after year 3
12% decline after year 4
8% decline after year 5 and every year after

They say the the year 5+ decline may only be 6%, but until they see a better sample they are estimating 8%.

Source: Go to Page 21 in Here

Granted, this is Barnett data, but it is actual data.

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Permalink Reply by Skip Peel - Mineral Consultant on September 6, 2008 at 2:45

Recognizing that the ability to compute the decline curve for Haynesville Shale wells will require production data from many wells and possibly take several years to establish with some accuracy, in general terms, how will the greater formation pressures and production on restricted chokes affect the decline curve?

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Permalink Reply by bungalow_steve on September 5, 2008 at 14:48

There are few things to consider depending on your contract
1) transportation, compression, dehydration expenses are deducted from your royalty. If you have a good contract this won't be deducted.
2)Usually the price the gas companies use is the price they sell it to the gathering line company (the pipes from the wellhead to the transmission lines). This price is lower then the market price. Sometimes the gas company owns the gathering line company and sells it to them at a very reduced price to reduce your royalty. If you have a good contract this won't happen.
3)If compressors are needed, they use gas from the wellhead to power the compressors, the is deducted from the gas output on your royalty.
4) You forgot taxes.

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Permalink Reply by Kassi on September 6, 2008 at 4:31

A no cost royalty can be negotiated. Also, a clause that stipulates sales to affiliates will require the royalty to be based on the higher of the price of sale to the affiliate or the price recieved by the affiliate at the market can be negotiated. You can also require that gas used by the O&G Company at the site be purchased at market price re, the royalty. You just have to have a good negotiator and enough bargaining power.
Re, the limited number of wells in a section. If you have enough bargaining power you can require a continuous drilling clause that requires the company to drill new wells within a certain amount of time of completion of the prior well until they have completed all wells allowed under the regulations and make up of the unit.
Louisiana has a 12.5% severence tax
One thing to be considered also is that the flow of gas allowed will depend on the market. Many times companies choke down the flow in order to ride out low market prices. If they did not do this the price would plummet even more do to the laws of supply and demand.
There are many variables. Could people receive huge royalty checks? Yes. Is it wise to budget your life based on that possibility? NO! For many folks these royalty checks will change where they can go out to eat but not where they live. Better to stick to your current budget and take whatever you do get from a royalty perspective to pay off existing bills early then start a nest egg or use for extras on a pay as you go basis. Otherwise there will be an upswing of bancruptcies due to dream buying instead of reality buying.

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