Royality expectation in western Pa Marcellus

Our 55 acre farm is located on the border of Allegheny and Westmoreland counties and we are part of a 332 acre unit leased to, what we believe is a very reputable company. The well head with 4 laterals will be placed on my property for the unit. We have been told that our expectation should be about 7 million cubic feet per day per lateral with nominal drop off after three years. Is this a reasonable expectation? I used the royalty calculator at a 15%rate and quite honestly, the annual revenue seems rather high. I do appreciate any insight. My best, SAM 

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0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on January 14, 2014 at 5:50am

The initial rate of 7,000 MCF doesn't seem out of whack, but the part about nominal drop off after three years is highly suspect.  Based on their numbers you can expect maybe 16 BCF total production from those four wells.  Maybe a little more, depending on what the price is 20 years from now and what it costs them to continue operating the wells.  Either way, you're looking at a nice payout.  Congratulations.  You're probably a millionaire and you didn't even know it.

Permalink Reply by scott m on January 14, 2014 at 5:57am

Thanks for your note, I do appreciate it and was just curious. By the way, the vast majority of when those monies are realized, will be going to my wife's and sons Christian non denominational HS in the south hills of Pittsburgh. The good lord does work in wonderful ways!

Permalink Reply by Jim Litwinowicz on January 14, 2014 at 6:11am

If I calculated right, you should get $70,000-$90,000 per month. But I do not know if your lease allows deductions so no way to know how much that may impact you. And these wells sometimes drop off rather quickly so don;t buy a yacht or Lear jet just yet.

Congratulations!  Enjoy and spend wisely.

Permalink Reply by scott m on January 14, 2014 at 6:12am

Thanks Jim and please refer to my earlier spending reply!

Permalink Reply by J. Kinney LandRights on January 14, 2014 at 7:39am

Only question I would have would be when would you realize that full potential?  If they're just starting to create the pad then you can guess it will be 6 months before the first lateral is completed. Hopefully they drill all 4 holes now and not wait on the other 3; unfortunately theres a lot of people in SW PA that have a pad and only 1 lateral drilled and have been waiting for years for the company to come back and drill the other approved holes.  Also have they informed you about pipeline? Is it already there or will they have to put in the infrastructure and tie it to a sales line? Also like Jim said does your lease allow deductions?  Lastly is the estimate of 7mcf, is that based on 100% recovery?  

Lots of variables such as time, operations, and recovery -- I'm just trying to bring up all bases so you get the best idea. I've heard horror stories of people about to get loads of cash each money only to have one lateral drilled with no pipeline and have been waiting for 2 years for something more.  Once one lateral is drilled then it's HBP'd and the clock stops and it's up to the company when they come back.  

Permalink Reply by scott m on January 14, 2014 at 7:46am

Thanks for your insight and will have to do some research! The one company who has been most active in our area EQT appears to have raised the bar for the others to get things moving, I am just speculating. They are not my company but have asked me to do a top lease with them, my location is rather good for a well. Will have to research that one as well. Again thanks! 

Permalink Reply by J. Kinney LandRights on January 14, 2014 at 7:55am

Best of luck scott m! Seems like you're familiar with how everything works and have great plans for the future royalties!  Feel free to pick my brain if you have any questions -- 

Permalink Reply by scott m on January 14, 2014 at 7:59am

You are very kind and thank you!

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