What's going on with Middlesex Township in Butler County?

Is anyone in the group knowledgeable about current events, particularly near Overbrook Road?  What type of unitization is in process for what well?

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Permalink Reply by Philip Thackray on December 10, 2013 at 5:28am

FMV,.

This is the James West property operated by Rex (Adams Township) and they are building the pad.  Their may be another "West" name that comes up in the permit notices but it is not Rex.  Interesting trivia, the younger James West sculpted the statue of Guyasuta and George Washington that was recently placed up on Mount Washington.

Stacked Burkett / Marcellus just like Baillie Trust pad outside of Evans City - which went in to production by the way.

Phil

Permalink Reply by FairMktValue on December 10, 2013 at 7:50am

http://www.depreportingservices.state.pa.us/ReportServer/Pages/Repo...

Ya Phil, thats the one. I am only seeing a 1H and 2H permited.  Is one of them a Burkett, Rex calls them HB don't they?

I guess that link does not hold the detail but you plug in Adams Twp and it only shows the West and still the Fritz.

Curious about the statue, have to look it up.

Thanks

Permalink Reply by Philip Thackray on December 10, 2013 at 8:43am

FMV,

My stacked Burkett / Marcellus comment was about Feree.  I don't know what is up with Rex West wells.

The statue is right in front of Monterey Bay restaurant at the edge of the hill.

Phil

Permalink Reply by FairMktValue on December 10, 2013 at 9:44am

Sorry for the confusion Phil, too many brain farts today! lol

I took it to mean they were gonna stack em at West also, which would have been interesting.

Think I will try that email link someone posted in another thread and get the plats for West.

Cheers

Permalink Reply by Oliver Perry on December 12, 2013 at 4:09am

FMV,

Were you able to get the West plats from Katie Schmid at the DCNR? Katie is quick to respond to requests, but the DCNR normally doesn't get the plats from the DEP until much later on in the well development process. If you are still looking for the plats I might be able to get them.

Permalink Reply by FairMktValue on December 12, 2013 at 6:09am

Thanks Oliver,

Actually I wandered off into something else and never send the email.  lol

Let me get my butt in gear and see if this route works so I do not have to bother you every time I want to look at a plat. If the DCNR does not have them yet I will let you know.

Cheers

Permalink Reply by FairMktValue on December 12, 2013 at 9:42am

Wow that was fast !!!!   Replied back is just over an hour!

Ms. Schmid is on the ball.

For anyone that is interested - West Plats attached.

Cheers

Attachments:
Permalink Reply by Adams Landowner1 on December 13, 2013 at 5:19pm
Phil,
From my very limited knowledge of leases, it looks like there are deductions, therefore I labeled it 'net' instead of 'gross'.
Permalink Reply by FairMktValue on December 27, 2013 at 4:48am

Work has started on the entrance to the Ferree Pad on 228. Been working the last week 10 days.

I say entrance because to the best of my knowledge the permit for the pad itself has not been finalized.

I am guessing that some PENDOT approvals were involved because it looks like they are working on lowering down the bank to improve the sight lines at the entrance. That is a good thing to do. I suspect that that road will also be used for access to the proposed pipeline (Reno to Kennedy). If so, that entrance will have quite a bit of heavy truck traffic. Good spot for it actually, on a main State road. 

Rex prolly doesn't mind spending the extra money. From a PR standpoint it mitigates complaints about heavy truck traffic on old winding secondary roads. As Phil has noted - Brownsdale Rd. has taken some abuse from all the drilling activity. 

Cheers

Permalink Reply by Philip Thackray on December 27, 2013 at 6:03am

FMV,

Actually, Brownsdale Road IS a State Road!!

I go by the Feree site a couple of times a week.  Did XTO ever hookup the Quinn?

 

Adam L, RB, etc…

The “deductions” expressed as percentage points (ex. 20% minus 2 percentage points is 18%) from the original Royalty is a function of the Royalty percentage.  Here is an example:

I have seen Rex and now XTO royalty check stubs.  The costs (deductions) for “processing and transportation” - NGLs and “transportation and gathering” - residual gas (methane) is about 20% of the gross sales amount.  (This percentage level is rather high since prices are low – should prices firm up (as gas is doing now) and things like ethane recovery become reality the deduction percentage from gross should go down, however, these are numbers I have seen.)

Let’s say that your property occupies all of the unit and your Royalty percentage before deductions is 18%.  Let the gross sales (from the unit) of NGLs be $100K and methane be $200K for a total of $300K.  The total deductions will be $300K x 0.2 (20%) = $60K.  With an 18% royalty, your percent of the gross income will be $54K and your percent of the deductions will be 10.8K so your NET is $43.2K.  And $43.2K is 14.4% of the original gross sales.  So in this example the Royalty is reduced by 3.6 percentage points (not percentage, percenage points!) by the deductions.

The general rule is really quite simple Original Royalty x % of total deductions = decline in percentage points (in this example 18% x 0.2 = 3.6% points) but I think that the actual calculation above better clarifies how it all works.  If you are only a part of the unit, the numbers work out the same you would just be dividing and then multiplying by the same number.

 

So deductions have a rather severe impact.  A “no deductions” clause would be great to have but the above calculation explains why you probably will not get that in Southern Butler County.

Phil

Permalink Reply by GM on December 28, 2013 at 9:17am

Phil, I have a question for you. I have read a lot about "no deduction clauses" here. Are you saying that an XTO lease currently specifies in the royalty clause that it is "royalty %" MINUS X deductions? If this makes my question precisely, XTO's leases specifically outline that the lessor's royalties are 12.5 (example) minus the deductions for processing and transportation?  Thanks

Permalink Reply by RB on December 30, 2013 at 6:02am

Phil,

Thanks for sharing that information.  Yes, 20% is pretty steep.  What you are saying is that these deductions appear to be fixed, rather than variable costs.  That could be a partial reason for the avoidance of ever stating what those costs will be in the contract, which by the way, to me seems rather rather egregious. BUT, as a cost of doing business, they should be tax deductible, and I hope that the drilling firm is not taking advantage of writing off those costs while passing on to the landowner.  Not sure how one would write that off on personal taxes.

Hopefully they will get the drilling efficiencies kicked in ASAP, as it would certainly be in the best interests of all stakeholders.   I was reading recently that the technology now exists to extract three layers at one time, the Devonian, Marcellus and Utica, which I think is driving the interest in SW Butler.   If I understand what you were saying, the bi-products are now refine-able and marketable.  So, yes, I would think that the firms number one objective would be creating these economies of scale with their drilling operations.

I questioned our rep on the expected Rex deductions for our net lease.  He could not be specific, but did say that they would likely be around 2%.  He mentioned that no one doing business with REX has complained about their deductions and to his credit, I have looked and not found any REX complaints on posted online. With other firms, yes.  I will post my deductions once I get one and you can bet I will be asking  a lot of questions so that I completely understand them.

So we shall see.  FYI, I have been told will likely be part of 1st half 2014 drilling operation.

RB

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