Average royalty earned = $24,000 per acre

 

Based on the extraction footprint data we've collected over the years, the estimated life time dollar value of the gas produced by a horizontal unconventional gas well is slightly over

$190,000.00 per extraction acre.

 

If the minimum royalty percentage of 12.5% is applied to this per acre dollar value, the estimated lifetime royalty payments for an extraction acre (an acre of shale from which all available gas has been extracted) is slightly less then $24,000.00

 

The extraction acre production and royalty estimates are based on these criteria:

 

- Lifetime total well production of 4 billion cu/ft

- At the wellhead (ATW) gas pricing of $3.35 per Mcf

- A horizontal drilling bore 6,000 feet in length

- one-eighth royalties based on ATW pricing values

 

These estimates will vary significantly if any of the assumptive values are changed. It's worth noting that our research indicates that the estimated life time well production value of an unconventional gas well varies significantly depending on the source.

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Replies to This Discussion

Permalink Reply by Doug Duffield on April 24, 2014 at 1:39pm

Are you factoring in one formation or multiple formations?

Permalink Reply by David Perotto on April 24, 2014 at 4:42pm

Hi Everyone,

As stated above these are not my calculations. As per range resources most recent company presentation:

56% of horizontal dry gas  Marcellus wells drilled by

industry in SW PA have projected recoveries from

5 to over 20 Bcf per well.

Range is referring to its "super-rich Marcellus" in SW PA. Based on this estimation, Marcellus gas .org is probably on the mark. Not every area will produce these superior numbers. Cabot has stated EUR dry gas numbers even higher in their best areas in NE PA.

Permalink Reply by Thomas Lilli on November 7, 2014 at 11:46pm
This then is post production data regardless of number of lateral?
Permalink Reply by Philip Thackray on November 8, 2014 at 12:56am

What is being discussed here is the "per lateral" lifetime production.  The Range example David Perotto mentioned is for a 4500 foot lateral.

Wet, dry, location, location, location, hard to define a typical well. 

Phil

Permalink Reply by Tim Tarr on October 5, 2015 at 1:52pm
I'm sure that 4Bcf is per acre not per well. So a 1000 acre unit after all 10 wells produce for their life. I crunched the numbers some time back and that's real close to my results, using ranges GIP numbers. I posted it on a selling rights discussion.
Now as I stated then that was the Marcellus. There are other plays above (Rhinestreet and/or Burket) and below (Utica) just to name 2 most recognized ones. There will be others later.
Permalink Reply by frank ellis on April 24, 2014 at 1:55pm
That seems a little low. However you are using the dry gas numbers.
0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on April 24, 2014 at 3:11pm

Unit size is not listed.  If the unit is 640 acres and they only drill one well (unlikely but still worth noting) then the royalty is worth about 10% of the value stated in this formula.  Back out the numbers and you'll see that this assumes a unit size of less than 70 acres.  Even an 80 acre unit (which is going to start happening more in the Marcellus) isn't $24,000/acre.  I'd like to get a closer look at the formula.  I wonder if they're using the standard PV10 (I'm doubting it) because that number seems high for the values given.  Using Ohio's 500' spacing rules a 6,000' lateral needs at least 160 acres.  So a little more clarity in how they arrived at this would be nice.

Permalink Reply by Jon on April 24, 2014 at 4:59pm

Is the number net or gross?

015334grltd9mPermalink Reply by 015334grltd9m on April 25, 2014 at 2:03am

If state-of-the-art technology only allows 30% of the minerals to be harvested, shouldn't the math not be by the full acre but the fraction?

Permalink Reply by Philip Thackray on April 25, 2014 at 6:38am

Ron,

Something like a 30% recovery rate is assumed in the calculation.

Phil

Permalink Reply by Dave on April 25, 2014 at 7:01am

Consistent with what I have been hearing conservative (low) estimate $100/acre per month for 20 years on average.   100*12*20=$24,000.   Average performing dry gas well.  

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on April 25, 2014 at 8:41am

Dave,

Who told you that?  Because if they're someone that you're friends with you should probably find new friends.  If it's someone whose information you're paying for you need to ask for a refund as soon as humanly possible.  If it's someone you work with you should probably try to get them fired because eventually they will do something stupid that affects your life.  That is my advice. 

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