Replies to This Discussion

Permalink Reply by jffree1 on December 2, 2010 at 3:15

Congratulations, David! Two wells have been drilled on the Lauren Alston Unit but no completion results have been reported to RRC yet, so I can't tell you anything about the wells.

If you just take what they have told you at face value, you would calculate your interest as a part of the 22.5% royalty on the controlling lease(s).

145 acres / 667.71unit acres = 0.021716 X .225 = 0.044861 X 0.041666 (1/24) = 0.0018692

Once you have some production to calculate, you would multiply X monthly production X price per mcf

example: 0.0018692 X 300,000 mcf X 3.50 per mcf = 196.27

(someone may correct my math) You will be paid for production from all wells in the unit and you already have two wells. The figures I used in the example are very conservative and it won't be life changing money but it will give you some mad money each month. And... EOG is building out their units so you can probably expect more wells. I would just be hoping they wait until the price of gas improves some.

The example doesn't take into consideration that there are deductions for taxes, transportation, etc... which can vary from one operator to another.

Permalink Reply by David on December 2, 2010 at 3:25

Thank you. That gives me a better sense of how this works. Something I read led me to believe that some companies are having to drill (and not wait for higher gas prices) because they are nearing the end of 3-year leases. In order to keep the leases alive, they need to drill.

Just to confirm, based on your rough conservative calculation, the 196.27 refers to the monthly payout from just one well? I assume that production declines quickly after the first few months. Is that true? I appreciate your insights. Thanks again.

Permalink Reply by jffree1 on December 2, 2010 at 4:37

David, that was for one well. Yes, a lot of the drilling now is to hold leases. The 196.27 was based on hypothetical production of 300,000 Mcf of gas produced in a month, which would be what a well, averaging 10 million cubic feet per day, would gross. Yes, they decline fairly quickly but the rate of decline, which used to be projected at 80-85% in the first year, is being adjusted by some operators, who are using smaller choke sizes initially, which would produce less gas up front and extend the life of the well and increase EUR (hypothetically). There is a lot of experimentation being done across the play.

Permalink Reply by GoRicky on December 2, 2010 at 5:29

If you wanna sell, I know a guy.... buyers are getting rare

Permalink Reply by jffree1 on December 2, 2010 at 5:35

Hmmm, would that fall under the site "no-solicitation" rule? I wonder...

David, if you do receive offers to buy your interest and you want to investigate that income stream, I recommend getting several offers because buyers, while becoming more conservative in this low gas price environment, are still out there and their offers run the gamut from really good (6K+/acre) to predatory (500-1500/acre)... in your area of interest.

Permalink Reply by David on December 2, 2010 at 5:46

Thanks. And I agree that it doesn't seem appropriate to solicit in this forum. We have such a small nonparticipating royalty interest that I can't imagine in any case why someone would want to buy it. Seems to me that we're better off to hang on, as small as it is . . .

Permalink Reply by jffree1 on December 2, 2010 at 6:14

That is a personal decision which only you can make. I was talking about Net Mineral Acre offers since you don't yet have any royalty income by which to judge the NPRI value of the interest, just to clarify.

Permalink Reply by jffree1 on December 2, 2010 at 6:53

I can't imagine in any case why someone would want to buy it.

Because you have the potential for multiple pay zones under your interest... Haynesville and Bossier Shale, Travis Peak, James Lime, numerous shallower zones above the Haynesville that may not have been explored/exploited yet.

Permalink Reply by David on December 2, 2010 at 7:13

Aaah. Back to geology class. I'll do some research. Thanks.

Permalink Reply by David on December 3, 2010 at 1:01

One more question: I failed to mention that these wells are part of a pooling agreement. Does that affect the calculations or any other factors?

Permalink Reply by jffree1 on December 3, 2010 at 3:27

That's hard to say without reading the agreement. Most all leases contain a pooling clause. How does this agreement differ from what is in the lease you ratified?

Permalink Reply by David on December 4, 2010 at 10:30

Good question. We only signed a pooling agreement but we have seen a copy of the lease that EOG/others have with the family that appears to have the controlling interest. Frankly, it's hard to untangle, so I think we'll just wait to see what happens . . .

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