Replies to This Discussion

Permalink Reply by Bill Fowler on April 21, 2009 at 1:10

Jeff - You can create your own calculator very easily in Excel. To get to 6.5 BCF EUR, I decline the wells at the following annual rates over the first 15 years: 85%, 50%, 40%, 30%, 25% for years 5-15. Then simply apply your gas price estimates and there you go. Bill

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Permalink Reply by Skip Peel - Mineral Consultant on April 21, 2009 at 4:22

Bill. I am wondering where you came by your decline figures. They are considerably higher than any I have seen. I have been using CHK's of 81%, 34%, 22%, 17%, 13%, 11%, 9%, 8%, 7%, 6%.

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Permalink Reply by The_Baron on April 21, 2009 at 4:46

CHK does have a way off taking an optimistic approach.

I know decline rates is a pet project of yours, and that data is limited, but have you seen any definate data?

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Permalink Reply by Skip Peel - Mineral Consultant on April 21, 2009 at 4:59

Baron. No. That's why I am interested in Bill's figures. If the source was one with strong credibility, I'd average it with CHK's, as right now that's the best I can do. I have no great interest in knowing the exact numbers at this time and know that a year or more production from 100+ wells will begin to get us to an answer. In the meantime, I just want a good approximation to plug into models. My initial discussions on the subject were also motivated by wishing royalty owners to understand the relationship between the decline and their royalty income.

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Permalink Reply by The_Baron on April 21, 2009 at 5:50

I have been interested as well, sometimes it is hard to just wait and see what is going to happen with these wells. I have been especially interested in what the big blockbuster wells will do over time.

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Permalink Reply by The_Baron on April 21, 2009 at 7:42

Skip,

Look at page 10 on this new report.

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzMzMzk0...

it has a cute little decline curve for the first 240 days or so for HK wells

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Permalink Reply by Skip Peel - Mineral Consultant on April 21, 2009 at 9:00

Baron. HK could be a little more definitive without claiming to have chiseled the answer in stone. It appears that the graph, if extended to 365 days, would equal a first year decline in the neighborhood of 75%.

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Permalink Reply by Greedy Landowner on April 21, 2009 at 9:38

I read somewhere that they have restricted production on many wells due to the low prices. If this is true, wouldn't it skew the decline curve from the true potential?

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Permalink Reply by The_Baron on April 21, 2009 at 3:32

Most of the internet calculaters do not account for decline at all. They just calculate based on the average production you insert.

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Permalink Reply by JeffNParis on April 21, 2009 at 3:39

Thanks Bill and Baron...I'm 'Excel-challenged'. Can someone help me figure out what one acre should gross for 15 years with those kind of decline rates, a 25.0 royalty rate, gas at a reasonable market price and the average Haynesville BCF rate?
Jeff

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Permalink Reply by Jon Williamson on April 21, 2009 at 6:49

Your royalty decimal should be about .00039 in a 640 acre unit. Use that to do the math. Figure maybe $5 for gas although it might be higher/lower. Here is an example using 300MMCF for a month from a good well. 300,000 x $5.00 = $1,500,000 x .00039 = $585 in royalty for that month. Use the decline percentages and just follow it out. This is a very rough way of doing it, but if the well paid you $585 every month the first year (it won't), during the second year it would be 85% less or $87.75 per month...just a back of a napkin way of getting you to what you want.

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Permalink Reply by JeffNParis on April 21, 2009 at 6:55

Jon,
Thanks so much! That really helps.
Jeff

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