Comment

Comment by JT on September 12, 2011 at 9:37am

I agree with what you say Dan....it's just a rough estimate.  Since wet gas is included in the liquids total, I think your calculation is a good estimate based on the information available in the report.  It's interesting to see this report...the liquids reported is way below some of the rumors that have been going around.  I was at a meeting about a month ago and heard production numbers of 1800 barrels liquids/day.        

Comment by Dan on September 12, 2011 at 1:31am

One thing I thought was interesting in that investor article on Rex that JT linked to below was how some producers are really trying to fine-tune the target within the Utica shale:

 

"Rex Energy (like Gulfport Energy) will be targeting the Point Pleasant  Formation which is located in the lower portion of the Utica Shale and  above the Trenton Limestone. The Point Pleasant Formation is a mixed  carbonate/shale interval that is believed to be the source rock for oil  and gas in shallow Clinton sandstones and Knox reservoirs. The Point  Pleasant Formation averages approximately 140 feet in thickness."

Comment by Dan on September 12, 2011 at 1:28am

JT, that's an informative article on Rex Energy, but I don't know where they come up with that 40% number.  Maybe that is the average of all the wells they have done so far, but that is a misleading number. It's not as if there is a solid boundary line defining the wet gas transition zone, and every well drilled in it is going to have the same proportion of gas to liquids.  In the western edge of the zone I presume it is a lot more oil than gas, and at the eastern edge there is a lot of dryer gas and much less liquid.  Using the  Buell Well initial production numbers, I calculate that the dollar value of the liquids is 21% of the value of the gas.

Comment by Dan on September 12, 2011 at 1:03am

Scott, the condensates in the wet gas are considered in with the oil as the "liquids".  While they are a different product and would have a slightly different price associated with them compared to oil, that price is close enough to the price of oil to be considered together in this very rough science of royalty prediction.

Comment by Dan on September 12, 2011 at 12:59am

In theory there is nothing wrong with a larger unit like 1280, if they develop the entire unit. The reason for the smaller units restriction in the leases is to avoid what Randy describes, which is that they drill one well in a large unit to hold it by production, then don't return to develop the rest of the unit for a long time.  Anytime a unit is not fully developed, the royalties are diluted among all the mineral-holders in the unit.  Assuming that eventually the gas company does come back to finish developing the unit, it does eventually work out, but restricting them to a smaller unit size keeps the royalty dilution smaller.  1280 is probably closer to the size that can be drained from one well pad, so if a gas company was restricted to 640-acre units, they might decide to put their well pad straddling two 640-acre units and then drill two wells on the pad with one going into each unit, so they could hold both by production.

Comment by Shower Bath on September 11, 2011 at 5:23am

If the operator of the drilling unit is seeking approval of a 1280 drilling unit, you would most likely be approaced to amend your lease to 1280. If you refuse they might leave you out of the unit, or decide to do a 640 unit and include some or all of your acreage. In Pa  it has been very common for the O&G companies to come back to the landowners and ask to amend leases that don't meet their needs. In my opinion, if you get stuck in a 1280 drilling unit, they will drill one well and you are held by production forever. They could then wait 5-10-15 years to drill a second well if they want.

Randy

Comment by AT on September 11, 2011 at 5:05am

Dan, I'm wondering if you can shed some light on this senario. Let's say you signed a lease with a unitilation clause of 640 contiguous acres. Your neighbors 2 miles in every direction of your land have signed leases with unitilization clauses of 1280 contiguous acres. How then would it be possible for your land to be pooled into a 640 contiguous acre drilling unit within the terms of your lease? What am I missing?

Comment by JT on September 11, 2011 at 1:39am

This article says that wet gas adds about 40% to the value...

http://www.stockmarketpundits.com/article/rex-energy-corporation

 

Comment by scott jackovitch on September 11, 2011 at 1:21am

Yeah ,  thanks for the info Dan.  I too do not see where the wet gas is figured in the calculation.  I see the 6.1 @ $ 4.20 but shouldn't that number be Quite a bit larger with the addition of the wet gas ?  " Inquiring minds want to know" Thanks again.

Comment by Josh on September 11, 2011 at 1:11am

Thanks Dan, now does that include the wet gas as well?  I see the dry gas @6.1 and oil @ 59bpd, but where does the wet fit in.  I appreciate all your information as well as other members.

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