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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Permalink Reply by Jim Litwinowicz on April 25, 2014 at 8:24am

Keep in mind this is over the lifetime of one well and covers just the acreage of that one well.  It is very likely that companies will have large units with a few wells on it.  The royalties will be shared with the entire unit so the /acre value will be diluted.  Future wells may be drilled 10, 20 or even 50 yrs after determined by market need. And that may be affected by competing oil and gas fields in the US and around the globe.

If there are big advancements in other energy sources, nat gas may go way down in value and no new wells ever get drilled. But if demand increases dramatically, nat gas may go way up greatly increasing the /acre returns. Improved extraction technologies will have a major impact on pricing and value. Such improvements may drive down the price of NG but the increased production may, or may not, offset the decline in price. Having multiple strata to produce will greatly add value.

In short, there are so many variables involved in making predictions that cover such a long time span that trying to place a /acre value on land is essentially worthless.

Permalink Reply by INVICTUS on April 25, 2014 at 10:16am

I would front load these numbers to the first 4-6 years of production. 80-90 percent decline curve within that period.

My earlier posts seem to correlate with these numbers.

Not my talent, but listening carefully to others who could predict based on THEIR real world prior experiences.

The proof will be in the payoff.

Don't forget CHK's promise for May 16 call: "Heavy Intricate Detail"

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on April 25, 2014 at 3:17pm

"I would front load these numbers to the first 4-6 years of production. 80-90 percent decline curve within that period."

That's the only accurate way to do it.  

Permalink Reply by Rodney T Hytonen on November 6, 2014 at 10:51pm
Permalink Reply by Paul Butler on November 7, 2014 at 1:12am
Lifetime total well production of 4 billion cu/ft

4 Billion is a fantastical amount.

The rednecks in Louisiana have an expression, which seems fitting: "I don't think so Tim."

Plug in 0.5 B per well on a field basis--that's optimistic too.

I hope I'm wrong. If 4B is correct, this country is entering a new gilded age.
Permalink Reply by Dexter Green on November 7, 2014 at 3:24am
Paul, 4BCF is not at all fantastical. In fact, it's a little low in many parts of the Marcellus.
Permalink Reply by Paul Butler on November 7, 2014 at 5:07am
Didn't Chesapeake just sell 1,500 wells doing 56,000 BOE/d.

It's a long road to a 4B/well with those numbers. 4B is nearly 700,000 BOE.

Many of these operators are reporting flush production, which is short lived, and not saying anything at all about decline curves and dry holes, the scourge of E & P.
Permalink Reply by Dexter Green on November 7, 2014 at 6:59pm

Paul, CHK sold wells that had been online for long enough for the decline to set in.  The expectation of a 4 BCF EUR in the dry Marcellus or Utica is absolutely reasonable.  Heck, COG had a well that did a BCF in its first month.

Permalink Reply by jason irvine on November 7, 2014 at 2:27pm
Paul I think you need to do a lot more research before you speak. Look at the statistics. Wells are hitting 30 to 40 mil. Ip's. Choking them to 14 mil. A day which they think could.last for up to a year to year and a half before decline. 4 bil. Is nothing in the southern point pleasant, wet marcellus and devonian.
Permalink Reply by tom on November 7, 2014 at 4:15pm

These figures relate to what???????????? DRY gas? WET Gas?  1050 BTU gas?  1350 BTU?

I am sure one size does not fit all.

Permalink Reply by jason irvine on November 8, 2014 at 1:02am
One size does not fit all but in monroe belmont tyler wetzel Marshall Washington and green counties the wells seem to have eur is 9 bil. And up. Paul used the 4 bil. Number and most in those counties especially are higher. The utica wells are killing it 8 in those counties and marcellus are not to bad either.
Permalink Reply by Bluflame on November 8, 2014 at 7:11am

  Gulfport, in their investor presentation posted yesterday, predicted EUR for their wet gas wells of 18.2-23.6 BCFE. Their Utica wet gas wells are in the southern sweet spot. Admittedly the addition of the "E" on the end creates yet another element of confusion. They've also "normalized" lateral length to 8000'. 

  Really, you can make yourself crazy attempting to predict output and can adjust assumptions to fit any scenario. IMHO….largely an exercise in futility.

Bluflame

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