Financing the drilling of our own wells.
Discussion for all. For the past 1 1/2 years I have been working with a landowner, who has 530 + acres of land in Franklin Township, Bradford County, PA. I became involved with this landowner, due to a mutual friend. My involvement was due to my company supplying non-destructive testing services to many of the gas companies. This involvement provided me access to many of the executives of these companies. Therefore, I have been able to set up meetings with several of the main players for this landowner. Needless to say, there has been an interest and several lease purchase offers. All of the offers have the 20% royalty payments, but the lease offers have ranged from $2,000 to $5,500 per acre. The last offer from an agent of one of the gas companies was $7,500 per acre. We asked that the agent get this put into writting, which did not happen. Even if the offer had been put into print, I do not think the landowner would have accepted the offer. Not a bad offer, but............
Way to much bad media print on what is happening to landowners. From low lease payments from the early days, before anyone really knew what was going to happen, to present day lease purchases ranging from $2,000 to $5,000. per acre. Then the next thing is the gas companies not drilling until the lease almost runs out, or taking extensions on time when it does run out, or the gas company drilling one verticle well just to hold the lease.
One gas company that we have met with on three occassions listened to our presentation, which was basically that the landowner was willing to reinvest the lease payment for additional ownership of the mineral rights, which would have provided the landowner an additional 7% of the remaining 80%. Additionally the landowner also presented to the gas company that he would like to finance the total cost of drilling, permitting, pipeline, stations, etc., with his own investors. Needless to say this scenerio did not go over very well. Naturally, the gas company wants the profits based on the life of the wells. The comments from the gas company is just how much money does the landowner need?
What all of this comes down to and also to bring this comment to a close is this. The land owner has investegated where to invest the profits. One idea was to take the profits and look into HydroPhonic Gardening on a commercial basis. With ownership of the mineral rights the landowner would be free to provide the gas needed to heat the buildings needed for gardening. After talking with his neighbors, who have all sold their land under leases, there has been enough positive response that 5,000 acres have been pledged for this idea. Does this landowner need all of the money? The answer is no, but he does feel a strong commitment to help others, who do not have the means to do so. The biggest obsticle to date is the fact that 530 acres is still considered as "small potatoes". We are now thinking that there may be possibilities of providing investment capital for other landowners, who have held out or joined a coalition. Contact: Keith
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Replies to This Discussion
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Permalink Reply by Doug Duffield on
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Interesting concept, cost to drill and complete the well (s), cost to provide infrastructure to use or sell the gas, cost to tap into the line as well as get the gas there or to the greenhouses all come into play, then profits for the landowners and market for the gas and greenhouse produce come into play. Will the pipeline co. that carries the gas go along with a minimal amt. from one supplier or go with the bigger cos. injection into the line in the long haul. A great idea with too many variables as stated in the thread starter, perhaps other marcellus royalty owners would be interested in investing as tax writeoffs?
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Permalink Reply by 0jw0dsu4txfuv on
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Robert,
i sent you a request to add me as afriend. I will speak to you privately.
Thanks
Homer
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Permalink Reply by Robert K. Shumway on
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Homer, sorry but being new to this account, I have not figured how to work adding you as a friend, but I'm working on it. Even now, I'm not sure if posting emails, or telephone numbers is allowed on this website. i will get it figured out so we can talk. I have been reading your comments to others.
Keith
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Permalink Reply by Robert K. Shumway on
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Good comments Doug. Unfortunately you only touched on 10% of all the variables. One gas company indicated to us the transportation cost at 25 cents per thousand cubic feet would amount to $15,000 per day and a fee of 5% would amount to $15,000 per day. I don't know, but perhaps they may still have an interest @ $30,000 per day and not have to put up the money for construction, permitting, etc.
Keith
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Permalink Reply by Jim Litwinowicz on
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I know one guy that is very wealthy that drilled his own well in 2001 into the Marcellus but it is just a vertical well. He uses the gas to supply about nine buildings on his 1500 acres. So it can be done. But since a horizontal takes about $6 million to complete it is a more daunting task.
There are several problems that come to mind other than financing the project. I imagine that with all the activity, all the drilling rigs are under contract for quite some ahead. And as it takes about 90 to 100 subcontractors start to finish, lining up all the subs would be a logistical nightmare. And getting every sub there at the correct time would be even tougher. And you need someone very good at dealing with the regulatory side also.
Then if you pull that off, you need to get a midstream pipeline to accept the gas, another company to dehydrate, separate, pressurize, and whatever else is necessary. And these companies are also under contract to take contracted volumes from the major drilling companies. And then after all that you have to sell it somehow. And for years to come, you will need various expertise to maintain and rework the well whenever necessary. The complexity, volumes, and pressures involved make using or selling the gas a problem.
And I won't even get into legal liability issues, insurance requirements, bonding, and more.
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There are firms in PA that can do everything for you on drilling and fracking a marcellus well. There
are many problems in actually doing this privately. It will cost between 5 -6 million dollars.
The Gas Co's are going to fight you tooth and nail. You better have good investment capital and an
attorney. I love your idea but honestly I don't see it happening.
Good luck to you
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Permalink Reply by Jim Litwinowicz on
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I will add that I read an article a couple years ago that a high school drilled its own well on its property, I think in the Barnett in Texas, and sells the gas. They even went as far as installing a gas turbine and generate their own electricity! They probably sell excess electricity too. But it would be very difficult to do so here as all these companies are tied up with the big boys.
Its like trying to build your own home and you are ready for the plumber. He also has three homes to do for a contractor that hires him for fifteen homes a year. Which is he gonna do first...your one time job or the guy the gives him homes fifteen a year?
If things were really slow in the industry, it might work. But I wouldn't try it when all the companies are going full tilt.
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Permalink Reply by Robert K. Shumway on
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Homer and all that have responded I appreciate all responses and was looking for all negative and positive comments. Every comment was right on the money with all of our thinking. This idea of ours may not happen, but we will try. My landowner has an excellent banking background, has numerious friends with money to invest. I have some very strong relationships with pipe laying contractors, land surveyors, and with one gas company that will be building the infrastructure pipeline to move gas that is 1 1/2 miles from the landowners property. Today I am thinking about the possibilities of working with landowner groups, like Wayne County, who have pooled over 18,000 acres. SORRY more later........running out of space.
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Permalink Reply by Robert K. Shumway on
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Jim, please read my response to Homer. Since I am new at this, I have found out there is limited space for replys. There will be more coming later, but just understand, my landowner is not greedy. Over the past 1 1/2 years we have been addressing all of the concerns listed by all responders. The percentage of pulling off what we are trying to do may not be good, but if we are able to do what we would like to do, then perhaps we could help landowners get a better return on the mineral rights from their properties. The gas companies, to include all major transmission companies, have been my clients for more than 40 years, and I have prospered by providing service to them all. But.....when innocent people are taken advantage of, that really goes against what I believe. I talked with a farmer in WV, who indicated that he had sold for $5.00 an acre. So Sad........More later...Keith
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Permalink Reply by Jim Litwinowicz on
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I had no intent to imply that anyone is being greedy for considering this. I have no idea how you got that from my comments. I think it is a great idea, especially for larger landowners groups, if it can be done. I just wanted to point out all the issues with such an undertaking.
Imagine if you are successful. That would encourage others to do so and would force gas companies to substantially improve their offers to leaseholders. It would have a dramatic affect on the entire industry. You may even start a whole new off-shoot to drilling....form a management company that oversees the drilling operations for landowner groups.
And even if you are not successful, the gas companies may up their offers to you just to stop you from proceeding. They do not want this to become a trend. On the other hand, I am sure you are not the first to attempt this. Hopefully, you have the expertise and financials to pull it off.
Best of luck...keep us posted on progress.
BTW, any of these rich guys have a single daughter???
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Permalink Reply by Robert K. Shumway on
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Jim, my comments about the landowner not being greedy had nothing to do with your comments at all, and sorry if my comments came off that way. The only thing I was trying to get across, was that my friend and landowner is the type of individual that while making money also wants to do something to help others. Even the HydroPhonic gardening is something that he would do to help his surrounding neighbors, who are tied into low profits from prior dealings at a time before it was known what would happen going forward. Thanks again, Keith
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Permalink Reply by Robert K. Shumway on
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Thanks Jim for your comments. Believe me everything you mention has been a big concern for us. We are going to try to take this as far as possible. We could take the 20% royalty and the lease money and walk away with no control over when the gas company may drill, but if we can do something to help our neighbors, while helping ourselves, then it is worth the battle. The best thing that has happened for me from all of your replys to my comments, is that everyone has good responses that are concerns that we have, but best of all everyone has shown some concern for what we are trying to do. Thanks again, Keith
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