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Permalink Reply by Kathleen on September 15, 2012 at 7:57am

If you have 100 acres and 50 were in a unit at 200 a month per acre for a year or two, my life would change. Than let them grab the other fifty, five years or so down the rd and again I feel life would improve.
I know having roughly 72 thousand extra after paying 40% in taxes is pretty good.
How many people around here make 120 thousand gross in salary?
I still think this money is gravy. We lived and worked here, most of us making it and now there's chances to make it without sweating it every month.

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Permalink Reply by Gary Citro on September 15, 2012 at 11:30pm

At the moment I only have what amounts to an acre and a half in a unit, with perhaps another acre and a half down the road, so I'm not expecting any life change but perhaps an offset to my property taxes.

Am I to understand from your post that you pay 40% tax on whatever profits you get from gas extraction? Perhaps I'm reading it wrong and I know everyone's case is different, but in general, is revenue from gas profits taxed? Is it generally considered like ordinary income?

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Permalink Reply by patrick on September 15, 2012 at 11:55pm

Royalty and lease money is taxed as ordinary income.

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Permalink Reply by Bluflame on September 17, 2012 at 9:51am

Unless things change with the next administration (regardless Obama or Romney), you currently will get a 15% depletion allowance on royalty payments. Lease bonuses are all ordinary income.

BluFlame

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Permalink Reply by Farmhouse on September 16, 2012 at 2:24am

For Dry Gas areas, there is no question that royalty checks are smaller than the hype. All landowners who are not yet receiving them should be aware of this. (no experience with Wet or Oily areas.)

Like so many out there, I bought into it and stayed up into the wee hours many nights dreaming and calculating how much money would be rolling in. It hasn't happened and likely won't. It's a bummer.

Do NOT quit your day job is sound advice. Unless of course you are sitting on 200, 300 or more acres of Oily Utica. I'm sure you could retire then.

The reason though is primarily due to the price of the commodity which at $2.80-ish is way off the $5-7 range of recent years past. Had those prices held and not crashed due to massive oversupply from shale development, then the checks would likely live up to the reputation set by the production companies.

Another reason for smaller checks that is getting lots of attention right now is deductions, when the producer deducts for expenses to get the product to market. Many current leases now have language protecting the landowner against this. However, the early leases called Boilerplate leases, usually allowed for deductions.

Chesapeake is one example that is catching a lot of heat for excessive deductions.

I agree with Kathleen though, any extra cash is better than not having it.

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Permalink Reply by JR on September 16, 2012 at 4:53am

Also keep in mind today's pads can accommodate multiple wells. Nice, long term source of income, and could also draw from multiple layers.

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Permalink Reply by bungalow_steve on September 17, 2012 at 3:27am

There are quite a few people who have retired in NEPA even at $3, a 12BCF well and 100 acres in a 640 acre unit is a large sum of money (a million). And that is just one well in unit of 6 to be drilled at a future date. Also there was bonus money, but realize these people are used to living on 20K a year and don't expect to change their living habits (most can't, just too cheap to spend money!). They bought a new truck, new roof, but thats about it.

 

$2.5 to $3 gas is the historic average price of natural gas when supplies are good, and they will be good for a long time.

 

Most people assumed $12 gas and all 6 well drilled immediately, you do that you get 10's of millions.

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Permalink Reply by Kathleen on September 17, 2012 at 5:47am

I know people who never dreamed of being mortgage free, now are. I do agree though that many here are used to living life with less. I had a few contractors out and each store I walk into I ask, "so have you see an uptick of business". The contractors all said no while the stores said maybe 2-5 extra customers a day.
I want everyone to do well but knowing tons of people are not blowing their money is reassuring. Now their heirs will :0). A lot of people in columbiana county did receive bonus money, but not many have seen royality money yet.

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Permalink Reply by bungalow_steve on September 17, 2012 at 8:02am

Yes, the dreaded heirs. Also, in NEPA there are large farms with 12 or so co owners common up here, they all own part of the farm but one member of the family actually farms it (kind of like the Waltons), that money gets divided down very quickly into nothing. In Texas, I hear, it common to have 100's of co owners of mineral rights with each of the great-great-great-great grandkids owning .1%.

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Permalink Reply by Dee on September 16, 2012 at 11:36pm

Demand for petroleum is way down, as shown in the article: http://globaleconomicanalysis.blogspot.com/2012/09/email-from-lead-... There is no boom in construction of CCGT power plants so the demand for natural gas for power is what it is for a while. Converting existing coal plants to natural gas will be slow to come if it comes at all and if they are converted they will not run very much due to poor heat rate and cycling times. Until we are in an economic recovery we will see low prices. I'm content with our product being left in the ground for now. Our attorney suspects that we will get a second bite of the bonus money apple before things improve. When it comes it will be what it will be and be a blessing.

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