Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on January 7, 2014 at 12:15

Tracy,  the demand for Haynesville gas is still depressed.  Operators have changed the manner in which they drill horizontal Haynesville wells.  The common well is now a CUL (Cross Unit Lateral) where an extended lateral produces from more than one section/unit.  Each of those wells is roughly equal to 1.6 of the older wells drilled in a single section.  Operators tend to drill multiple wells sequentially.  This means that some mineral lessors are getting paid on a single, older well which has largely depleted while others may be getting paid on multiple new wells.  Only the operators know in advance where they plan to drill and each tends to drill in areas with their best rock.  Marginally higher natural gas prices should be reflected in your next couple of royalty checks but that is a temporary seasonal bump.   I think we are still about a year away from significantly higher natural gas prices for Haynesville production.

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Permalink Reply by Tracy on January 7, 2014 at 23:59

Thank you for the information at least I know why the Haynesville remains depressed. I had always heard, "don't worry about the the lease bonus the real money will be made from the royalties" that is so not true !! Especially with all the deductions on no cost royalties checks these days! Thx again for explaining .

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Permalink Reply by Skip Peel - Mineral Consultant on January 8, 2014 at 1:16

Tracy, the logic behind the relative importance of bonus vs royalty remains true.  At the point in the future when the alternate unit wells are drilled in your unit, the royalty income will be much more than any possible bonus differential.  Your royalty is generated by one well that is 4+ years old.  If your operator were to decide to fully develop your unit in 2014 you would get 2 to 6 additional wells drilled one after the other.  Then the royalty income would be much more than it is currently.

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Permalink Reply by Checkmateking on January 10, 2014 at 1:45

Well Tracy it might have something to do with gas prices going from an all time high to falling almost 75% percent during the Haynesville boom. 

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Permalink Reply by Paul Patel on January 8, 2014 at 0:18

Skip,

I agree with your comment about Gas Prices being about a year out from new activity.  Do you feel that more "Landman" can start coming into the market within the next 6-9 months?

I feel that that Landmen are here doing there work about 3-6 months prior to activity starting.

On another note do you have any idea on why activity in Anderson County (Palestine, TX) has been slim with the amount of Landmen that have been there for the past year.  Oil Drilling is not really expected to take off for about another 6-12 months.

 

Thanks

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Permalink Reply by Skip Peel - Mineral Consultant on January 8, 2014 at 1:11

Paul, most of the land work has already been performed for Haynesville and Cotton Valley development in E TX so higher prices and increased drilling activity will not bring back landmen to any great extent.  If new prospects are explored or natural gas prices rise significantly that would probably bring about more leasing activity and would require landmen to be busy in those specific areas.

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Permalink Reply by Paul Patel on January 8, 2014 at 1:30

Thanks for the info.

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Permalink Reply by adubu on January 7, 2014 at 14:40

Tracy--- also your royalty check is for production and prices two months in rear so you will see the $4 prices on your Feb check for Dec production and prices. As Skip says the older wells are getting long in tooth with production declining.

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Permalink Reply by Tom Graves on January 7, 2014 at 17:39

Adubu,   Obviously you are not talking about $4 pricing with CHK wells :)

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Permalink Reply by 1kw6x71km1v37 on January 8, 2014 at 5:06

Production accounting with Cross Unit Lateral wells must be a nightmare unless field-wide units or co-mingling of production are authorized by the Commissioner of Conservation.

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Permalink Reply by Skip Peel - Mineral Consultant on January 8, 2014 at 5:24

cs, the only reference to how production is allocated which I have seen to date is based on the percentage of the perforated lateral length located in each unit.  I expect the Commissioner and staff will stay out of the inevitable tug of war that will surely emerge.  The courts will eventually deal with the issue and case law will replace legislative or administrative action.  I've brought this up with several experienced O&G attorneys including one who represented large mineral interests in the first unit to have a CUL application.  No one knows has this will play out.  Technology now exists to measure production per perforation cluster and that would be the most accurate means to allocate production to royalty interests however that will turn out to be more problematic and upsetting to mineral lessors than the simple percentage of perforated lateral approach.  Another good example of how the mineral code and civil law is ill-suited to regulate the modern reality of E&P.

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Permalink Reply by Skip Peel - Mineral Consultant on January 8, 2014 at 6:03

From what I have read to date there can be wide variance in flow per cluster in the same lateral.  If allocation of royalty based on production per perf becomes standard in CUL wells, those mineral lessors with non-producing or under-producing clusters in their unit will be unhappy.  And royalty income per acre will be anything but uniform.  IMO the percentage of perforated lateral per unit is the more simple and equitable means to assign production.

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