Royalty Payout

Does anyone know the estimated decline in royalty payouts over the life of a well?

I am told for my lease it would be between 25k-40k per month.

I read in another forum, not necessarily for marcellus, that this declines after the first year by 80-90%.


Thanks,

Denver

West Virginia

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Permalink Reply by Dexter Green on September 26, 2014 at 3:19pm

Without specifics it's really hard to make any type of educated guess.  I've seen Utica declines modeled out at 65-70% in year one, though that number could be manipulated down depending on the flow management. Marcellus should be about the same.  Expect 80-90% of the total production to come in the first 60 months of the well.  These wells produce royalties that are usually heavily front-loaded, so make your accounting choices accordingly.

Permalink Reply by jed davis on September 27, 2014 at 3:00am

not me

Permalink Reply by Philip Thackray on September 27, 2014 at 3:08am

Typical PA and WV decline curves.

Phil

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0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on September 27, 2014 at 11:23am

Denver,

     The sad truth is your royalty decline rate will rely heavily on who your producer is.

How about an Amen from the PA landowners.

Permalink Reply by Kevin on September 28, 2014 at 1:05am

I agree Ron. I don't think those charts mean much to some.

Permalink Reply by Denver Davis on September 28, 2014 at 9:26am

Thanks for your info.  I haven't looked at the data sheets yet as my version of excel won't open them.  I forwarded it to my email and will open on my laptop.

But, all being said, and knowing what little I know, it will depend on production.

But, for a fact it will decline.  How fast depends on production, and how aggressive the drillers are.

They are saying they will drill 6 wells per pad site, but might drill one on my lease, move over to another lease and drill one, then move back, etc.

That makes sense, from their standpoint, and may prolong royalty for me, but at a lesser amount.

If I am thinking correctly....

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on September 28, 2014 at 1:32pm

Denver,

     It will depend on where you are. If you are in the wet gas with pipelines, in a place like Carroll County where there are many wells feeding the Kensington Processing Plant the flow rate could be low so the production decline is slower for example over 3 to 5 years from 50% to 10%.

Those wells you here about that are at full flow could expect a 100% to 10% reduction in as little as 2 to 3 years.

Since you started off by talking Royalty Decline, the folks in PA with the pipeline deal between CHK and Access Midstream suffered a large Royalty Drop off but it wasn't due to production, as you may have heard about. It was an off record inside deal to pay back the pipeline using landowners royalties.

Did I mention CHK does what they want? You know I did.

Permalink Reply by Denver Davis on September 28, 2014 at 1:59pm

No, I didn't know.  But I do know something was going on with them.  I won't say much more than that, because I have had dealings with them.

I am going to start another thread to discuss the company I am leasing with, to not stray away from this topic on the 'royalty'.

The royalty is an 'after the fact concern' I guess.  The bonus check can put the blinders on.  Not that I am to worried, but once I signed, other thoughts came to mind.  I need to know how to manage for my heirs.  I got grandkids I would love to pass some security to.  God knows they will need it.

Permalink Reply by Philip Thackray on September 28, 2014 at 11:54pm

XLS format of decline spread sheet.

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