Haynesville Well Pay-Out

Just received another (low-ball) offer to lease from a major player in the Haynesville Shale that is out of OK.

In part it reads:

" . . . the actual reasonable expenditures . . . is expected to cost in excess of $8,000,000.00 (no surprise here). The time to reach payout can be estimated to take approximately 58 months (4.8 years) using a natural gas price of $4.50 . . . " .

Also:

" . . . if you . . . would like to wait a lo-o-o-o-ng (emphasis mine) time for any royalties . . . ", etc., etc., etc.

Now, my question is this. Just how does this proposed time frame for pay-out fit in with the recognized norm (if there is such a thing) or perhaps better said, average, of well pay-outs in the HA ?

There are some on this site who have way more understanding and experience in these matters than I do and any comments will be appreciated.

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Permalink Reply by Henry on July 6, 2009 at 23:42
One question to ask is this: Are they hedged at a higher value? If so (need a lawyer here, KB??), do they base the point at which the well pays out on their hedged value (more like $7 for CHK) or the current value?

I don't know the answer, but maybe someone else does?
Permalink Reply by CB on July 7, 2009 at 2:28
Get real. First of all, you only hedge part of your gas (less than 50%). Second, royalty owners do not get the hedge price. There is risk in hedging. If the real price is higher than the hedge price the royalty owner screams foul.
Permalink Reply by Grillin' - MmmMmm on July 10, 2009 at 17:09
Agreed. Hedged prices are not tied to an individual well or its production. Hedge contracts are akin to financial contracts and these are taken out at a corporate level, not for individual or groups of wells. Sorry, but landowners/mineral owners don't share in the upside (or downside!!) of hedges. And yes, sometimes there is a downside to hedging!
Permalink Reply by The_Baron on July 7, 2009 at 3:04
well payout is based on the price received at the wellhead. same with royalty payments.
Permalink Reply by CB on July 7, 2009 at 2:29
Get real.
Permalink Reply by E & E on July 7, 2009 at 2:45
CB,
The math doesn't lie. You need to fracking get real.
Earlene
Permalink Reply by CB on July 7, 2009 at 9:40
Listen jack, gas is getting less than $3.50 at the wellhead. These companys are losing there butts. Most will go bankrupt or get merged. They are hypeing everything including decline curves. Get ready for the tumbleweeds in your neck of the woods until gas gets to $8.
Permalink Reply by The_Baron on July 7, 2009 at 9:55
I doubt that they are losing their butts. But gas prices are in the tank, we are currently getting less than $3/mcf on some wells.
Permalink Reply by E & E on July 7, 2009 at 12:01
CB,
Hate to let you know, but I am a Jill. In your post you make it sound like the sky is falling, the sky is falling. Yet you posted this in another topic:

CB replied to Skip Peel- Independent Landman's discussion 'Decline Curves: Barnett vs. Haynesville' May 11
Actually, wish I had royalty in this play because royalty owners will eventually do very well.

Which is it? Oh I get it from May 11 to July 7th you saw the sky falling. It can't be both ways. You as a geo should know that you have put yourself between a rock and a hard place.
Earlene aka Jill
Permalink Reply by Skip Peel - Mineral Consultant on July 7, 2009 at 12:16
E/Jill. I have a suggestion where CB can deposit his tumbleweed. But then again I imagine most of the members can guess the appropriate location so I will not provide specifics. Suffice it to say, Preparation H would be the prescribed medication.
Permalink Reply by CB on July 8, 2009 at 0:46
Like I said before jack, when gas gets to $8 I would love to have royalty. Get it?
Permalink Reply by lanadan Ds3 on July 8, 2009 at 0:29
Thanks Wolf ( and others, of course ) for your spot on comments, particularly your " . . . no one can predict payout with certainty . . . " comment. This is just plain common sense reasoning, is it not ?

For the SENIOR Land Negotiator of a major natural gas company involved in the HA to advance such a notion ( see original discussion ) -- apparently in an attempt to " scare " an UMI into a lease -- is (at least to me ) not only insulting and demeaning ( along with a few other adjectives that I could probably think of ), but does little service to his position as top dude.

It makes me wonder what part of the show that Moe and Curly are running ! LOL

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