Drop in Royalty Amounts on 2nd Check

Just received our second royalty payment for our well in Susquehanna County.  The first check was for three months.  There was no dollar amount for month one and two.  Month three averaged out to $375/acre.  This sounds good on the surface, but the following months check was almost shocking at less than $220/acre.  Our royalty payment nearly dropped in half after only one month.  I wasn't expecting this sort of drop until after the first year.  There are some issues with one of the three wells on the pad--we're only included in one of the wells.  It'll be a wait and see until next month.  Perhaps the problem child well caused temporary shut down on the others, so I don't know if this is a typical drop in royalties.  My advice to everyone out there...don't base much on that first check.  I'm glad we just sat on ours and waited to see what would happen.  If anyone out there has had a similar experience or just the opposite, let us know.  Thanks.

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Permalink Reply by RB on August 27, 2013 at 1:22am
Thanks for info. Was it net or gross? If net, what % was taken out? Thanks.
Permalink Reply by H. Copella on August 27, 2013 at 5:11am

No taxes of any kind were removed.  This was based on 15% royalties for us.  My accountant said to with hold 30% for taxes.

Permalink Reply by H. Copella on August 30, 2013 at 12:02am

There are three wells drilled but only two are producing.  If I heard correctly, the third well was having issues and hasn't been fracked yet.

Permalink Reply by dennis elias on August 27, 2013 at 5:07am

I was just told Saturday a well on someone that I know said you can expect the first check will be the most . Also added their well will not be producing  until further pipelines are connected ...which make sense ....these companies are trying to received a money flow back ...Wells pads will be made up  but rigs may not be set up for drilling until more pipelines are connected , Because of the amount of money that has been put out .  

 

 

Permalink Reply by Richard Droske on August 30, 2013 at 5:58am

First check is always the highest as pressure in well is most. This article shows that production will drop very fast in the first year. The drop will slow considerably after that but will continue for the life of the well.

http://geology.com/royalty/production-decline.shtml

Permalink Reply by Gringo on August 30, 2013 at 9:54am
During the first few months there are issues that can affect flow. Operators can make adjustments. If all things were equal yes your 1st check would be the highest but they are not. Need 3-4 months get a true feel. In one of my units operator had 1 well not producing properly so they shut the other 2 down while working on the 1 multiple times.
Permalink Reply by Jon on August 30, 2013 at 12:28pm

So what percent were the royalties anyway? 12.5, 15, 20, etc....

Permalink Reply by Canter on September 15, 2013 at 2:54am

Dennis

Nine months to peak WOW! Gives me something to look forward to.

Could you let us know if it is still peaked or  what the MMcf/day is after the 10th month, or after your next check? I am curious to see when this drops.

If this is to personal, I will understand. Thanks

Permalink Reply by H. Copella on September 26, 2013 at 12:08am

Okay,  we just received the check for month number five.  The check was for $175/acre.  So it was another 20% drop from the month before.  Although this well and one other are producing on that pad, the third well is currently being fracked.  So there may be a change after that well is completed and producing.  According to what we're seeing, the drop in gas price from last month only contributed to a 3% drop.  There was a 17% drop in production from last month.  Hope this helps those out there wondering what you may eventually get in royalties.  Our royalty percent was 15% with no deductions, by the way.

Permalink Reply by Amy Groskopf on September 27, 2013 at 1:39am

How many acres in your unit? How many acres do you personally own? We gavent received anything yet, I was just curious

Permalink Reply by Susquehanna Sally on September 26, 2013 at 2:52pm

yes Copella...thanks for the info!

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on September 26, 2013 at 4:03pm

H. 

       Take a look at the articles in Farm and Dairy for Sept. 12th 2013:  Page 1, "Unfair Share", then go to page A12 and A13 and read "Chesapeake Agrees To Pay $75 Million Over Gas Royalty Controversy In PA", and read "PA legislation guarantees Minimum Royalty Rights Amid Controversy".

The stories may be available on line at www.farmanddairy.com

Some Quotes from the Unfair Share Story that are worrisome:   "Complicated Accounting - In many cases, lawyers and auditors who specialize in production accounting tell ProPublica, energy companies are using complex business arrangements to skim profits off the sale of resources and increase the expenses charged to landowners. Significant amounts of fuel are never sold at all - companies use it themselves to power equipment that processes gas, sometimes at facilities far away from the land on which it was drilled".

The article goes on to say that oil companies sell the oil/gas to a company they own at a cheap price and pay you the royalty on the sale, then resell the oil to make the real profit without paying a royalty. Also the statement that it's a good business practice to not pay royalties to landowners then pay only what is required by a lawsuit in PA since there are no penalties for cheating the landowner.

 

 

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