Replies to This Discussion

Permalink Reply by SAM Cd2 on December 9, 2008 at 5:29

Thanks, kcripper and frederick.

Permalink Reply by BirdDawg, plain ole' idiot on December 17, 2008 at 13:40

Fredrick
Is that a Cotton Valley well?

Permalink Reply by Napkingirl on December 9, 2008 at 8:08

How do you know if the land that you leased will be drilled on?

Permalink Reply by Emmy on December 17, 2008 at 10:39

Hi, I'm new to this site and this discussion. Honestly, I know practically nothing about this, I inherited a small amount of land in DeSoto Parish. I signed a lease in July. How do I keep track of what wells have been placed on my portion of land? I really need to be more informed: what are the best ways to stay informed? Any advice is appreciated!

Permalink Reply by Napkingirl on December 17, 2008 at 10:41

I feel the same way as Emmy. Any info. would be appreciated!

Permalink Reply by Emmy on December 17, 2008 at 12:10

I have the info from the lease: section 4, T10N-R12W, etc., what do I do with that information?

Permalink Reply by Emmy on December 17, 2008 at 17:23

Thanks so much for the info! I really appreciate it.

Permalink Reply by Kay DS1 on December 17, 2008 at 12:11

SONRIS is the best place to see the activity in any area.

Permalink Reply by Mlbjr on March 17, 2009 at 2:48

No, but I have been informed that the production of a well in which I am participating has produced slightly over 6 million cu ft of gas per day. I am trying to figure out about how much I will receive based on this production and my 25% participation in this unit. It may be more appropriately to give me some indication how these pay-outs are figured on a certain amount of daily production.

Permalink Reply by gregory richardson on March 21, 2009 at 23:45

I just went through this with my parents. It's a good question with a tricky answer. Basically, computing income is fairly straight forward:

Daily production * (your percentage of a section) * (your royalty percentage) = gross daily production you will be paid on

gross daily production * (current wellhead price) = gross daily income

gross daily income * (.35 or .36) = after tax income (at least until Obama changes the tax code for depletion allowance)

The tricky part is "well head price". The royalty calculator at geology.xxx is useless. The unit price the calculator refers you to (price per 1000 cubic feet) component is actually the Henry Hub spot price. This is not what you will be paid. You can assume (and I'll let others comment here) that the wellhead price will be somewhere between $.50 to $1.00 less than the spot price. The actual rate is very dependent upon the company you are doing business with as well as whatever oddities are associated with your well.

So, if you want to truly get a handle on future cash flows, you need to chat with someone in your area who already has production with the same company and see what they are getting at the wellhead. Also keep in mind the declination rate of the well - e.g. - at the end of the first year your 6 million cfd well will go down to 1.2 million cfd (80 % decline, depending upon who's guesses you buy into).

Permalink Reply by gregory richardson on March 22, 2009 at 0:10

Correction ...

The following is incorrect:

gross daily income * (.35 or .36) = after tax income (at least until Obama changes the tax code for depletion allowance)

It should be:

gross daily income * (1 - (.35 or .36)) = after tax income (at least until Obama changes the tax code for depletion allowance)

Sorry about that ...

Permalink Reply by CB on March 22, 2009 at 1:29

Let me educate everyone. Not that I am an expert, but I am a geologist that has been drilling in South Louisiana for 35 years. When a well is tested it is usually for a short time (say 24 hours) and can be vented to atmosphere (state only allows venting for a short time). When a well is put on production (into a pipeline, exploration companys do not store gas) it usually takes 2 months to receive a check. It usually takes longer for the first check (they have to set up a pay deck or might have to survey the unit). Some wells have been on since June so people are receiving revenues. Checks will decrease in value quickly because gas prices have gone from $14 to $4 and decline rates for the HS are rather steep, at least 85% per year.

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