I've seen a lot of discussion about what we as landowners can expect to receive from royalties. When doing my research before we signed 2 years ago, I found from various sources, the estimated range to be between $15,000- $30,000/acre over the lifetime of the well.

I'd like to throw this out there to see what people think

I'm going to make some assumptions at the beginning

1)The pad drilled has 6 wells on it and all the wells are within 1 unit composed of 1280 acres

2) The first well costs $7M to drill, every other one on the pad cost $5M

3) Royalty rate is 15% with absolutely no deduction

4) The G&O Co. will make $4 profit for every $1 spent (less royalty to landowner)

5) Half the gas is produced in the 1st 5 years (For simplicity, there is no cost added for re-fracing resulting in no additional gas produced in following years)

6) Bonus money paid averages $3000/acre for the entire 1280 acres

7) All costs for transport, enhancement, etc are not figured in because there are no deductions on the royalty

8) All wells are fully producing with no choke off

So, the G&O pay bonus money in the amount of $3,840,000 (1280x3000). The wells cost $37,000,000 (5x$6M + 1x$7M). Total cost to the G&O $40,840,000, resulting in a cost per acre of just over $31,900.

Add a profit margin of $127,600(400% x $31,900) to the cost per acre of $31,900 = the gas company should expect to recover a minimum dollar amount of gas worth $159,500 from each acre of land.

Your royalty is $23,925 (15% x $159,500) per acre. Imagine that! Right in between the $15K and $30K estimate.

Taking this further, you will get ~$11,962 the first 5 years, average just over $199/month ($11,962/60)

I made some assumptions, but there are variables in every scenario (a smaller unit's wells won't cost as much to drill, bonus amounts, royalty % may differ or have deductions, wells may produce more or less, depletion may be shorter or longer) but when I hear amount of $3-$4/month/acre to amounts of $1000 and up per acre/month, I wonder what is really right. At $3/acre/month, the G&O are getting killed, but at $1000/acre/month, they're the ones doing the killing

Talk to me!