Have WPa Bonus and Royalties Peaked?

 

We're still waiting to sign and have lease offers in the wings....... should we wait a few more months or sign now? Will the $$$ go up? Has the interest moved to the Utica in Ohio and away from PA?

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Permalink Reply by paleface on December 14, 2011 at 1:46pm

 royalty % is very important but a good producing well is more important.

2s72s0k9mm8gdPermalink Reply by 2s72s0k9mm8gd on December 14, 2011 at 5:28pm

Sounds like Bernie Madhoff is busily working from prison.....?

How are all these investors being paid if there are only a handful of wells being drilled and why are they tripping over there money bags to invest?

Is Chesapeke just smoke and mirrors bilking investors out of their $$$?

Confusing to me , that's for sure.

If this is all legit then unit size will have to be alot bigger than 640 acres it would seem to me. Yet in Ohio we keep hearing about tiny units of 150-200 acres though........? It ain't adding up. Most leases are probably 5 years or less...how many 10 yr. leases are out there?

Why the mad rush to lease so much land then?

Oh well , I will have my signing bonus very soon so i guess i will have to savor every dime.......sounds like it may be my last.

Permalink Reply by Jack Straw on December 14, 2011 at 9:06am

Glenn,

          RE: "Royalties outweigh bonus a thousandfold."

I think that you might be over estimating royalties.

With your $3000/acre bonus, I doubt thet you will ever see royalties totaling $3,000,000.00/acre ($3000.00/acre x 1000 fold).

That would mean that a 640 acre unit would expect to ultimately receive around $2,000,000,000.00 (two Billion dollars in royalties).

My more realistic estimate would be ultimate royalties of around 5-10 times bonus ($15,000.00 - $30,000.00/acre). Still not shoddy.

For some people, the bonus money might be all they see during their lifetime.

In my opinion bonus money and any potential royalties are both important.

The bonus money is the "bird in the hand", potential royalties are the "five-ten birds in the bush".

The bonus money is a sure thing, royalties are somethig to be hoped for.

For me, the key is to focus on maximizing the bonus money while likewise attempting to obtain terms that have the potential to maximize hoped for future royalties.

 

All in my humble opinion.

One size fits most.

 

JS

 

 

 

 

 

 

 

 

2s72s0k9mm8gdPermalink Reply by 2s72s0k9mm8gd on December 14, 2011 at 1:44pm

5-10x bonus Even in a liquid rich play? Or is this estimate for dry gas?

Permalink Reply by Jack Straw on December 14, 2011 at 5:06pm

5 x for Natural Gas

10 x for Oil rich

 

My “back of the envelope” calculations follow:

These figures are likely generous, as they do not reduce for water saturation, etc.

 

Oil barrel: 42 US liquid gallons =  5.61 cubic foot

 

1 acre = 43,560 sq feet

43,560 sq feet x 100 ft thick (average Utica productive thickness) x  8% (average Utica porosity) x 7.5% (average Utica recovery factor) = 26,136 cubic feet

 

26,136 cubic feet / 5.61 cubic feet/bbl = 4,659 bbl

4,659 bbl x 15% royalty x $100/bbl = $69,885/acre royalty

 

That assumes 100% oil.

Assuming 40% oil and natural gas liquids and 60% natural gas

Oil = $27,984/acre royalty

40% Oil and NGLs very generous estimate.

That works out to about 10 times the $3,000 sign on bonus.

 

All in my humble opinion.

 

One size fits most.

 

JS

2s72s0k9mm8gdPermalink Reply by 2s72s0k9mm8gd on December 29, 2011 at 12:23am

Jack:

We also have the Marcellus......And the Patterson Well Site just got 3 more permits , two of which are designated with the suffix "D"....?

A third play by the sounds of things. Would you know what the "D" represents? Devonian maybe.....a shallower play?

Care to re-calculate royalty potential for us lucky folks who have all the strata beneath our feet?

Thanks Jack.

0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on February 3, 2012 at 6:39pm

Hi Glenn, just happened to notice your comments on page 2 (bttm of page and couldn't put the reply there for some reason) but you stated,

'why the mad rush to lease so much land then?'

Evidentally you haven't seen this tv documentary about how the mortgage business got bundled up in bulk quickly and then got sold overseas and to investors to make profit...

it is  the house of cards that really brought down the US economy.

http://www.bing.com/videos/watch/video/cnbc-originals-house-of-card...

(worth watching...the meat of the story is after about ten minutes into the documentary). And who do you think now owns those mortgages? the people that bought into the 'bulk packaging' in the rush to own mortgages as investments on their dollar and the ones in Wall Street that came up with the idea and made the initial profit made their monies and their damage is done.

You see Chesapeake and other oil companies are learning that these resources are a one time type of purchase if they can obtain leases that are indefinite based on the clauses they use and it worked for many but now many people are getting educated.  So the rush in on to 'bulk package' these leases and sell them right away even before our governments (local, state, and federal) can get wise to all that is happening....oh yes they want to produce natural gas but not on all the properties...most are just for the 'deep pockets' to hold over time.   There isn't any more natural resources under people's lands to lease out after these leases are effectively bought up....it is a mad rush to gain the stronghold of the leases.   The lessors are given some royalties but even that hasn't been proven to be as it was told when they leased.   Yes there will always be some dedicated faithful workers but at the helm many of those companies are only interested in the immediate profit...not all oil companies and employees are that way...but not all mortgage brokers and banks were wise enough to investigate what they were all involved with...cause it was for profit.   So what do we all have if they are only rushing to sell these bundled leases for profit for now and future holdings, especially to non-citizens and foreign oil companies?...we have a messed up landscape dotted with drilling rigs, trucks hauling water, and some people losing out on their quiet peaceful lands some getting good royalties and others not so and others never knowing when a drill site will even show up, and yes we have investors in other nations that we don't even speak the same language but they hold a stronghold over the US natural resources....but most of all we have oil companies that are making 14k per acre to the 2600 per acre they paid just maybe a year ago (quite a profit for not even drilling yet).   So why the mad rush to lease?   is that a good answer to your question?

 

2s72s0k9mm8gdPermalink Reply by 2s72s0k9mm8gd on February 4, 2012 at 7:08am

VG

Leases are only indefinite as long as they are being produced. Royalties are paid based on production. No one should ever sign a lease if they fear the consequences of production will adversely affect their quality of life. The rigs are temporary and when done will be gone. The completed , producing well site is pretty benign. The cleared strips of land for the pipelines will be more numerous but that is the way of things. Around these parts they have been around more than my 51 years so I am used to that.

I agree that it is sad that foreign investors are involved but that is business. We have many interests overseas as well , so it is reciprocal.

What we need to focus our energies on is expanding the demand for NG. The U.S. needs an energy policy that embraces our plentiful fossil fuel reserves and encourages there exploitation for our common good. We can and must become energy independant. The Russians and Saudis can sell there oil elsewhere. Personally , I buy my gasoline from Kwikfil.....100% American crude refined right here in the USA.

Glenn  

Permalink Reply by lou alaksin on January 12, 2012 at 12:39pm

I am interested in your comments on the differences in ohio and wpa shales.     I am negotiating a lease in northwest corner of beaver co. in pa about 10 miles from the oh line.     I don't understand why there is such a difference in the offers being made - wet gas/dry gas, marcellus/utica, thickness of seam?     The counties in oh directly across the state line appear to be receiving $5-6000 bonus, 18-20% royalty.  My offer 6 weeks ago was $2500, 15%net.     Both areas are over marcellus and utica.    Geology.com maps show that both areas have marcellus deposits with 710-1244 mil.cu.ft. per sq. mile.      Utica is 300-400 ft. thick in the oh counties,  200-300 ft. thick in my county.     I do not know about the wet vs dry gas situation.      Can you offer any insight?

Permalink Reply by Dave on December 14, 2011 at 10:41am

I wonder why?...................

Houston-based Endeavour International Corp. (NYSE: END; London: ENDV.l ) has canceld its plans to acquire leasehold and producing interests in the Marcellus shale in north-central Pennsylvania, as well as a pipeline and related facilities, held by SM Energy Co., Denver, (NYSE: SM) and its partners for a total of $110 million.

The deal was meant to represent an exit from the Marcellus shale by SM Energy, which projected receiving $80 million for its assets including infrastructure.

Endeavour originally planned to acquire 100% operated working interests in approximately 50,000 net acres in McKean and Potter counties. Current production from three existing wells is approximately 3- to 4 million cubic feet of gas per day, including the Potato Creek #3H well that initially flowed 11 million cubic feet of gas per day. Additionally, Endeavour intended to acquire 100% ownership of Potato Creek LLC, which owns a midstream gathering system and related facilities in southern McKean County.

SM Energy’s assets involve approximately 42,000 net acres as well as associated pipeline assets. Average first-quarter production from three producing wells was 2 MMcfe per day. As of year-end 2010, booked reserves totaled 5.6 billion cubic feet equivalent, of which 50% were classified as proved developed.

If the deal had been concluded, Endeavour's leasehold interests in the Marcellus shale will total approximately 93,000 gross (68,000 net) acres.

Bank of America Merrill Lynch was advisor to SM Energy

 

Permalink Reply by Jack Straw on December 14, 2011 at 12:23pm

My guess, Endeavour looked at the current price of Natural Gas (and saw the direction in which it appears to be headed) and re-evaluated their decision to purchase.

Today NG for January delivery hit $3.10 on the Nymex; this is very low for the heart of the winter.

A glut of Natural Gas, an economy stumbling along, political uncertainty (World Wide) all could have factored into Endeavour's decision to back away.

While applauding the successes in the Marcellus, these successes have gone a great way towards causing the current Natural Gas glut; we may now need to wait for demand to catch up with supply.

About the only bright spot in the U.S. economy is that current low Natural Gas prices are a boon for those who consume Natural Gas.

Love the Marcellus, hate these low commodity prices for Natural Gas.

 

All in my humble opinion.

One size fits most.

 

JS

 

 

Permalink Reply by paleface on December 14, 2011 at 12:41pm

 Jack,why do you think the new found oil reserves dosen't effect the barrel price of crude its still around 100.00 a barrel?

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