Replies to This Discussion

Permalink Reply by Adam Ugliuzza on February 1, 2012 at 6:35am

The 6 million cubic feet is the amount of gas per day the unit produces, not your share of the land. It would almost impossible to tell exactly how much your share of the unit is producing. The other thing to note is that they don't typically release more than 6 million cubic feet of gas per day per well into the pipeline because any higher flow will deteriorate the separation equipment used to clean the gas before it enters the pipeline.

Permalink Reply by Frank Walker on February 1, 2012 at 11:32am

Thank you, Adam.  Much appreciated.  Your answer makes sense, even though it also causes me to be a little disappointed.  Still, this is what it is and I will go forward accordingly.

Thanks again!

Permalink Reply by melissa humphrey on March 5, 2012 at 1:49pm

FWIW Many wells in SE Bradford have done 8mmcf/d for over 12 mo.

There are wells in Susquehanna doing 15.

 

Developing trends- the longer the lateral the more the frac stages seem to inhibit decline somewhat. Areas vary, Troy looks to have normal declines, verticals-very fast, SE Bradford slower. Gascos do throttle back for various reasons.

 

You can be sure, there will be declines, just isn’t any other way. Any well not in decline is being calibrated. The 1^st 2-3 mo can see increase as the well cleans out.

 

A big concern for those getting royalty now is, will new wells be drilled fast enough to replace falling income on early wells. Or will it be 5 yrs?

Ouch.

Permalink Reply by Frank Walker on March 5, 2012 at 10:16pm

Good post, Melissa.  Thank you!

I'm not in the high production region . . darn it.  I don't have any of those "gushers".

But I have to confess wondering, as I thought about this, for anyone who might be in excess of the 6 million allowed maximum, how the IRS would know.  I mean, there are thousands of wells.  And I concede the production numbers are published.  But I have to question whether the IRS is going to the trouble of crunching all those numbers.  I doubt they even know into which drilling units my land falls.  Yes, that's public information.  But I doubt the IRS is processing and collating that data.

I do my own taxes, and I wrote the OP prior to filing.  I now have filed and I claimed the full 15% depletion.  It just seemed to me, as a practical matter, that was the obvious thing to do.

Also, off topic:

For landowners in "gusher" territory the money surely is in the royalties.  But for the rest of us, not so much I think.  For the rest of us, and especially with gas south of $2.50, suffice it to say let's hope we got a good bonus payment.

Permalink Reply by melissa humphrey on March 8, 2012 at 12:45pm

Frank- I don’t want to sound like a know it all, but really think the following applies.

-        -The IRS dos not monitor wells, they just get 1099s from the operator. If the operator is taking transpo/gathering deductions, be sure to deduct those as an expense. Silly as it sounds, 1099s report gross, not adjusted for the deductions.

-        Royalty is key for everyone. Poor geology won’t get a big bonus. Most pads will have 6+ wells, now you are probably receiving from 1, maybe 2 – LOTS to GO.

-        A lifetime 5 BCF well at avg gas px of 5 produces 25million gross$. Per acre that is about 250,000 or at even 12.5 R-interest = ~36000 lifetime.  Assumes all works out.

 

What Twp are you in?

 

Regards and good luck.

Melissa

 

Gas is unsustainable under 2.50, prod will dry up and prices will take off. I think&&&&

Permalink Reply by Frank Walker on March 8, 2012 at 10:44pm

Gosh, Melissa, that's a wonderful point you make about the deductions!  It does not help me personally as I have none.  But I hope other royalty owners pay heed to what you have written.  It's not something I've run into prior.

I started out with my first unit with eight wells.  That was then, with much higher gas price.  This is now.  My second unit came in with just one well.  Third unit is looking like three wells.  As you point out, latter two units will eventually blossom to eight wells . . most likely after I have croaked.

I have no problem with all that except I do study adjacent units, which are not mine, to check for developmental level.  To the extent units "talk" with one another there is real possibility of gas loss IMO, depending of course on geology (i.e., local shale characteristics) which is highly variable and virtually unknowable for royalty owners.  Still, one can study production from adjacent units, precise wells producing (farther away is better), and so forth.  The gas companies don't talk about this "unit interaction" stuff much, probably for fear of having a riot on their hands.

As for your lifetime income mention, all I can observe is that:  I admire optimistic people.

Finally, everyone hopes your "prices will take off" scenario comes to fruition soon.  On the other side we are experiencing record warm temperatures, HBP pressures all across PA, an Administration afraid even to utter the words "natural gas" other than in the softest possible whisper, and an ongoing national economic slump.

My own forecast, free and worth every penny, is that NYMEX natural gas, currently resting uneasily at circa $2.30, will hit $2.00 before it reaches $3.00.  And $3.00 natural gas is no bonanza.

Permalink Reply by melissa humphrey on March 9, 2012 at 3:34am

2 or 1.5 would be good IMO.

it will kill the higher b/e plays and maybe for good.

 

4-6 in 2;3 yrs? maybe, maybe not

Permalink Reply by Frank Walker on March 11, 2012 at 1:58am

After further review I am seeing a different marketplace dynamic:

First, agreed lower prices will forestall plays where the break even (b/e) point lies above current spot.  There could even be surrender (loss) of some bonus money in certain instances.

But in the fullness of time, as prices try to recover, there is no impediment whatsoever to restarting and developing such plays.  The latter activity will have a chilling, a throttling, impact on NG prices ad infinitum.

The only real hope for sustainable higher prices lies in increased demand.  But natural gas is a fossil fuel.  So with the environmentalist wackos 100% in charge in Washington, D.C. today, our only prospect for change will come with November's election.

This current Administration can't even get the Keystone pipeline built, for goodness sake!!