Royalty amounts

So I know this has been beat to death, and I'm aware of the variables involved, and also the resulting variations in royalties...........BUT......... A person I know who is in a unit currently being drilled was told by someone with the drilling company that he could see $50,000 per MONTH in royalties.  He owns 60 acres.   Is this even possible for a Utica well??   Even if it was a great producer, and the well had several laterals, and it was a small unit, it just doesn't seem likely to me.  They told us when we signed leases that the signing bonus was "chump change" compared to royalties, but that amount just doesn't seem possible.  By that I mean I can't wrap my head around a gas well making so much $$ to where they could afford to pay one landowner that amount.   I asked again if he meant that amount is what HE could see, or what the whole UNIT would see, and he said again he was told this is what he could be getting.   Oh and the kicker?   His property was HBP by an old Atlas well, so he's at the 12.5% rate also!!

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Permalink Reply by john williams on January 9, 2014 at 5:04am

Yes it is possible,as long as they drill 6>8 wells on the pad..Unit can't be more then 640 acres. And as long as you are lease with a company who doesnt take more deductions then they are suppose to..GL  John

Permalink Reply by frank speaker on January 11, 2014 at 10:00am

Chesapeake estimates its recoverable gas on my 1200 acre unit to be conservatively valued at $385mm @$4.00. Over a 25yr. period that comes to about $1000 per acre per month, so royalties with no deductions would be 1/5 that at 20% regardless of decline curve. This is conservative because it does not take into account future improvements in recovery technology. However, we are only considering gas and zero oil. The value to the operator for your land lease is far greater because gas can be refined to products salable at far greater than the price of unprocessed gas. Plus we are only speaking of the Utica wells whereas they have the rights to deeper and shallower layers so all these factors explain why the signing bonus can be seemingly out of proportion to the royalties. The big determining factor in royalties is not so much the gas but how much oil will be produced on a given unit.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on January 11, 2014 at 1:16pm

"This is conservative because it does not take into account future improvements in recovery technology."

It's not conservative because you're taking CHK's word on what the value is, which has historically been a risky bet.  Optimism is good and I hope that you get every penny of that money, but please be cautious when trusting these guys.

Permalink Reply by frank speaker on January 12, 2014 at 3:25am

I trust the figures but I don't trust I'll ever receive due royalties. My question to you is given that royalties are based on product sold rather than product produced and that there is at least a six month delay from production to disbursal of royalties and an unknown period between production and sale how can anyone, let alone a mere landowner possibly verify or audit a company royalty statement?

Permalink Reply by bo boboski on January 12, 2014 at 3:46am

I"m hoping, maybe someday, there will be a state sanctioned agency that will be doing the audits to make sure that the landowners are getting their due royalties according to their lease wording and production reports. Some other agency will have to make sure that the production #s AND the sales receipts are not fudged in anyway. In this business, I"m sorry to say, the "honor system" will not work. Someone will have to oversee and audit,and inspect. There are just too many ways for the O&G co.s to screw over the landowner.

Permalink Reply by daniel cohen on January 12, 2014 at 4:15am

Bo,

Are you aware of the classaction suit going forward by Doug Clark? There is a real service being performed by his law firm on all our behalf's.

Dan

Permalink Reply by bo boboski on January 12, 2014 at 4:32am

He seems to be a good one. O&G attorney, that is.

Permalink Reply by Nancy LeNau on January 11, 2014 at 3:23pm

Frank,  Speaker...... May I ask where  (state and County ) you are located ?  Many Thanks in advance.

Permalink Reply by frank speaker on January 12, 2014 at 3:14am

I'm in Harrison County, Ohio. The figures are from testimony accompanying their application for unitization. They use a 70% recovery factor. The Rensi Well is next door and is highly producing.

Permalink Reply by william on January 13, 2014 at 9:12am

Frank

which town or township are you in?

Permalink Reply by Booger on January 14, 2014 at 5:26am

the Rensi is in Stock Twp............just north of the high end of tappan lake.........also bordering the new MizerFarms Eclipse wells

Permalink Reply by Bill Frost on January 13, 2014 at 6:33am

   Yes the Rensi is a good well. looks like in the short time on line it could be better than the boy scout. It only had around 10 days production...Wonder what 90 days will look like?

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