Replies to This Discussion

Permalink Reply by Bryan on August 23, 2012 at 5:47am

Gallon so that would be 47.88 per barrel

Permalink Reply by PK on August 23, 2012 at 5:34am

http://www.ohio.com/news/local/company-reports-shed-more-light-on-u...

"Chesapeake has drilled 87 wells in eastern Ohio, but not all are operational. Its 28 completed wells are averaging about 1,000 42-gallon barrels of oil equivalents per day. Each well is daily averaging about 205 barrels of oil, 150 barrels of natural gas liquids and 3.8 million cubic feet of natural gas, the company said."

Statements like that do not appear to be peak production statements but rather daily averages of normal production. Doing some basic math on those numbers does not lead me to $300 and acre a day for 12.5% royalties. In fact, I took a $160 royalty amount and did the math in reverse assuming 20% gross and came up with it taking 4 1/2 years for CHK to pay off a well that took 6 mil to drill. At the production numbers stated above it would take less than a year based on a 155 acre PU (the acreage I used for my test).

I think the wells are throttled back until they have a way to get the mass amounts of gas and liquids to market. But that is just a guess.

Permalink Reply by Bryan on August 23, 2012 at 5:49am

I hope you are a very wise man.

Permalink Reply by PK on August 23, 2012 at 5:56am

Wise? You know better, my friend. :D

Permalink Reply by PK on August 23, 2012 at 5:59am

CHK recently reported that the AVERAGE production of its Utica wells is 3.8 MMCF, 205 barrels of oil and 150 barrels of NGLs

So……at $3 a MMCF of gas, 90 for a barrel of oil and 35 for a barrel of NGLs (depends on composition but I have seen as high as 50 per) I get the following per day…..

11400 from gas, 18450 from oil and 5250 from NGLs for 35100 per well per day

Over a year that is 12.8mil
At 155 acres a PU you are talking 82654 dollars per acre per year (gross)

At 12.5% royalty you have 10331 dollars being paid to royalty per acre per year

Do you see any issues with my math?

Permalink Reply by Bryan on August 23, 2012 at 10:28am

The price of gas is double what is being paid as of today, but I think you are good on the assumptions.

 

All the prices are trending up, so I believe these assumptions could be realistic in the future.

Permalink Reply by Denver Gallentine on August 23, 2012 at 1:53pm

PK,
Let me show my ignorance (do not tell anyone). Your calculations are w/ a 150 acre PU. Both PUs that contain my land are 900 acres. Does your calculations mean I should divide the $10,331 per year by 6 = $1,721 per year per acre. Hey, I cannot get rich that way. Please show me I am wrong. - Denver

Permalink Reply by PK on August 23, 2012 at 2:57pm

Denver,

We are all learning, my friend, and the more I learn the more I realize I have much more to learn.

It is my understanding that you are "paid" when drilled.  So, if a a single lateral is drilled to 150 acres and you are on that you get your share.  I am in your 900 acre PU but have not gotten drilled so I get nothing until I am drilled.  Then mine is drilled, the second one, the effective PU is now 300 acres and while your percentage of the "pie" is smaller by half the pie is larger by double.  And so it continues until all laterals are drilled and the effective PU is 900 acres.  What makes the larger PU attractive is that is the laterals are drilled at say 6 month internals you will have at least one lateral producing at the top of it's production curve for at least 3 years.  Now, no one is sure what the decline curve will look like for these but I'd rather have 3 years of pretty stable "high" checks before the curve kicks in rather than 6 months and then a decline.

That is my understanding of how it works, anyone can correct me if I am wrong.

Bryan, Does my assessment of this sound right?  

Yes, my gas price is high and NGLs are low I kind of put a spreadsheet together and can adjust the prices easily, I'll adjust my spreadsheet (thanks for the NGLs pricing info).

Permalink Reply by Kathleen on August 26, 2012 at 11:44am

Wouldn't that be saying the 1st drilled benefits the most? If thats true it would be unfair to the last well drilled mineral owners in that 900 acre production unit. I'm in on the 1st well on a pad so I'm hoping you're right :0)
The way I've been told though and read is everyone in that declared 900 production unit gets a piece of the 1st well, second.. Etc.... You do not have to wait until they drill under your land or in the leg that your land falls in.
Your royalties dilute the bigger the unit is but you have a chance for the royalities to go on longer so some feel it evens out. It only evens out if they drill the whole 900 acre unit.

Permalink Reply by AJ on August 26, 2012 at 7:32am

I just now saw this discussion so I am coming in a little late, but I think I can add some facts.

I own 62.6 a of a 184.170 A unit.

Three checks so far, I know the production figures for the next two.

First check was $624.75 per acre per MONTH.

Second check was $381.32 per acre per month.

Third check was $245.90 per acre per MONTH.  yes, per month not per day!!

the next check at the end of this month (August) for June production will be nearly the same as last month's check.

the following one for July production is looking to be about one half of May and June production.

So if their (CHK) production numbers are to be believed some of the other wells are doing quite a bit better than ours. ( I believe my well is the same as one of Bryan's (above)). But I would not believe one single word anyone from CHK said until I saw the actual production numbers on a check stub.

Permalink Reply by Donald on August 26, 2012 at 9:51am

THESE NUMBERS ARE NOT WHAT MOST PEOPLE WAS LED TO BELIEVE IN THE EARLY LEASEING PROGRAMS,IN FACT A BIT DISCURAGEING.

I HAVE BEEN READING ABOUT CHK IN SOME OF THE OTHER STATES, AND IT SEEMS THE PRODUCTION AND ROYALITY PAYMENTS ARE WAY OFF. I HAVE NOT BEEN ABLE TO COMPAIR CHK WITH SOME OF THE OTHER O/G COMPANYS. I HAVE SMALL ACERAGE LEASED WITH CHK, BUT NO PRODUCTION. I HAVE OTHER ACERAGE THAT IS NOT LEASED, BUT WHAT I HAVE BEEN READING ABOUT CHK, I DONT THINK I WOULD LEASE TO THEM. THE LEASE I HAVE NOW CALLS FOR 20%, BUT MIGHT BE BETTER AT 12.5% AND GET PAID FOR IT. IS YOUR PRODUCTION FROM OLD LEASES THAT WERE SOLD TO CHK?

Permalink Reply by AJ on August 26, 2012 at 10:20am

I see I left out one very relevant number. Those royalty checks were at 17.5% gross. Not the older 12.5% net.

Not very close to what we were led to to believe, so very true.

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