Payoff! Payoff!

OK since it doesn't look like I'm going to get leased and the well in my section is at TD there are some questions I have concerning when a well gets paid out. I know there are a lot of variables such as price and production but what do I need to look for as far as costs of a well? I know that these wells are running between 9 and 10 million to complete but what goes toward paying off that cost and what doesn't? For instance are royalties paid to landowners treated as cost of the well or do gross proceeds of the well count toward the 9 or 10 mil before the royalties are taken out? If it is a good well, whatever that is, roughly how long before the well is paid off? That one may be unanswerable. Maybe someday I can offer answers to some of these questions for y'all if I ever see the end of it.
Still good problems to have and something to dream about down the road.

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Permalink Reply by Jack Blake on June 18, 2010 at 9:05
Jack Blake thinks they will make a good faith effort to lease you before production commences.
Permalink Reply by Jeff on June 18, 2010 at 9:10
I honestly hope Jack is right. We had conversations with them before and they actually reduced the royalty offer from 25% to 20%. We considered them not too serious about leasing and haven't talked to them since. We have 20 ac in the section so maybe it'll be worth it for them to come back. However if it is meant to be it will happen. No worries. ....Yet
Permalink Reply by Henry on June 18, 2010 at 12:20
Jeff,
No, royalties paid to landowners are not allowed as cost of the well. Neither are bonuses paid to lease owners. Caliente wrote this up once. Why don't you read it and see if it helps. And, if you do go unleased, would you please start a blog and teach the rest of us what it is like? Many people on this site would like to track your progress. Good luck.
Attachments:
Permalink Reply by Jeff on June 18, 2010 at 13:38
Henry,
I'd be happy to keep you all informed if it comes to that. I intend to watch closely and get all reports we are due from the operator.
Thanks for the link.
Permalink Reply by Sarah on June 19, 2010 at 22:08
Another one here who would like to track your progress, Jeff if you decide that is what you want to do. Pam, a member here, has said in several posts she is an umo. I believe she said she's getting an accountant. Good idea!
Permalink Reply by Bacon on June 18, 2010 at 14:32
We have an escalating royalty clause that kicks in at payout. It's been over a year from a top 20 well and they're still not there supposedly.
Permalink Reply by Jack Blake on June 18, 2010 at 16:23
That sounds like creative accounting to me. A top 20 and not paid out in a year. Jack Blake smells something fishy.
Jack does like the idea of a blog on going unleased to help others in the future. Jack has about an acre south of the current HS area that he thinks they will eventually get to. If they do Jack may go unleased on that land.
Jack would be afraid to go unleased on his 20 acres of HS because of possible creative accounting that could make it where jack would never see any money.
Jack is not saying that oil companies cheat. He's just saying he does not trust them.
Permalink Reply by Jeff on June 19, 2010 at 5:13
The question I have is what about that 25% royalty. Does it count as cost? I have read that it does not.
Permalink Reply by Les Bamburg on June 19, 2010 at 6:04
Jeff, for an unleased mineral owner (carried working interest owner) it would not but for an escalating royalty or back-in clause it would.

The difference is that for a CWIO there is no royalty being paid.
Permalink Reply by Spring Branch,mineral owner on June 19, 2010 at 6:20
That makes sense to me, Les......Thanks.
Permalink Reply by Jeff on June 19, 2010 at 6:35
That clears up a lot for me. Thanks Les
Permalink Reply by Bacon on June 20, 2010 at 1:49
So they're probably getting close anyway. I suppose it will be a wash as the severance tax would start at payout.

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