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 Dan on November 14, 2014 at 12:54am
Are these calculations per acre per well? No production with our leases yet but they expect 4 wells in our unit from which our royality is to be calculated.
Permalink Reply by patty webber on October 5, 2015 at 12:28pm

Well I can tell you what we got this month for 23 acres from Mitsui, Stat, Andarko , and Chespk, we got a whopping 100. dollars and Mitsui says we are not making enough so no check from them the past 2 months.

Permalink Reply by Mark Mijavec on October 6, 2015 at 5:40am

Well I hope they choke back production and perhaps I will get at another time or my kids will!

Permalink Reply by Tim Tarr on October 7, 2015 at 1:58am
Patty,
At current nat.Gas & oil prices only ones making $$ are pipeline and processing companies. $3.50 was used in their calculations, current price $2.50 lower in PA,Oh and WV.
Expect massive cuts to cap ex (drilling and leasing). XOM (Exxon) may get cut from AAA bond rating. That would be a big deal!!
Permalink Reply by Jim Litwinowicz on October 7, 2015 at 3:12am

In much of Pa gas is going for less than $1.50/MCF

Permalink Reply by Paul Martinelli on October 7, 2015 at 9:48am

How can you validate the selling price the Producer lists on your statement?

In Ohio....2 separate leases/Companies....one list it at $1.27  one at  $2.93.

I know there could be valid reasons....just looking for way to validate

Permalink Reply by David Perotto on October 7, 2015 at 1:36pm

One company probably hedged their sales while the other one did not.

Permalink Reply by Thomas Rockwell on October 7, 2015 at 10:26pm

Our Eclipse prices for gas generally run well above the "listed:" prices for the first 50,000, but this is because they forward hedged.

Permalink Reply by Bluflame on October 8, 2015 at 1:53am

  Which brings up an interesting question. Are the producers obligated to share their hedged pricing "wins" with their royalty partners? If so, please keep in mind that the pendulum swings both ways….Hedging positions do not always provide a profit. BTW….there is nothing in my lease that addresses hedging, and I have not seen it noted in other leases I have seen.

  In my eyes, this looks like a situation fraught with potential for E&P abuse. Of course, we know they always have the best interests of their royalty owners in mind!!!

BluFlame

Permalink Reply by Hopeful on October 8, 2015 at 2:46am

That's wrong, David. Companies which hedge production (most of them) do NOT pass along hedge profits to royalty owners. Bear in mind that they also might LOSE money on a hedge, and they do not charge royalty owners for their losses.

Different companies pay different amounts because they have different end user contracts and because they use different accounting methods.

As far this general discussion goes, a 4 BCF well is not economic. There are parts of the Marcellus and the Utica that ARE economical (sweet spot) and also large areas that are NOT economic. I repeat... 4 BCF is not economic. Only better areas will be drilled.

Permalink Reply by Bluflame on October 13, 2015 at 7:16am

  However, Rice makes a legitimate argument. Hedging is a form of "educated" gambling. The actual price can either exceed or fall short of the contracted "hedged" price. Rice would get an equal amount of irate calls if their royalty price/mcf were below wellhead price/mcf. History says this hedging circumstance is a common occurrence. 

  Also, as a GPOR royalty owner myself, I haven't noticed a hedged price on my statements. Don't forget that the royalty payments are for sales a few months earlier. Rice & GPOR are very likely selling to different customers.

BluFlame

Permalink Reply by patty webber on October 8, 2015 at 12:31am

They are choking back the well in Pa. and taking out so much productions cost we are barely making anything in royalties.

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