Future royalties/decline rate....something to ponder

I've heard it all, but what's the truth. Does anyone really know how fast and how much royalties will decline? I have seen the decline (with mine) within the first year, but will they eventually stabilize? When I first signed, I was told the royalties would stay high for 4 years before a drop occurred. People are being told the wells will produce for 20 years or more. What would royalties be in 20 years? This is going to be very interesting.

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0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on April 26, 2015 at 2:21pm

There are decline curves that have been on this site. They always look the same but have different values on the horizontal axis which is time. The vertical axis is production starting at 100% and dropping to 10 percent based on rate of draw from the well.

The faster the well products are taken the faster the decline. I've seen a 1 to 3 year decline to 10%.

If the well is being slowly drawn down due to a large number of wells in the area feeding the processing plant like in Kensington, the well decliine could take years.

Now the other issue is Royalty decline. It might not follow the well product decline but will follow the greed of your producer when they decide enough people in the area have made a quick fortune, then it's time to feed their King and blame the theft on Stockholder needs. The ceos have always taken as much as they could take and said its all for the stockholders. I know, I worked for one and was a stockholder wondering where my fair share went.

I just got my Southern Company annual report which has turned into a company officer & board of directors compensation plan. They spell it all out otherwise you would think it was theft they were conducting. It's all legalized theft, and no one is being paid in the $100,000 range it's in the millions.

To right our nation, it's going to take legislation to limit company officials of all companies to a reasonable salary. Then there will be no reason to gouge the US Citizens to feed the greed. The downsizing will stop and the middle class will slowly return.

Who wants a nation of Kings? My ancestors left England in 1650 to get away from the tyranny of one king, now we have a nation of kings draining as much money as possible out of our take home pay.

I have several "Riders" on my electric bill that I wish would ride something else and stop riding me. Look at an AEP bill and you'll see:  Generation Service, Transmission Service, Distribution Service, Customer Charge (all of these are actually customer charges), Retail Stability Rider, Deferred Asset Phase In Rider, and Phase In Recovery Rider.

It all looks like bogus excuses for big executive pay to me. But you know, it's really for the stockholders, just ask them.

Permalink Reply by Frank Walker on April 27, 2015 at 2:00am

In 20 years?  Maybe bus fare if you're lucky.

Permalink Reply by wyalusing jim on April 27, 2015 at 3:15am

a bit more than bus fare I think.

it's important I think to save and set yourself up during the high ip phase of production, but in 20 years, with full development and higher prices, royalties will still be good.

wj

Permalink Reply by Frank Walker on April 27, 2015 at 3:36am

Really it's like real estate:  location, location, location.

The very rich, prime, shale . . . wj likely is correct and should be heeded.

Where I am (poorer shale):

One unit developed fully (eight wells) circa 2010-2011 started out amazing.  But now, already, royalties are way, way off.  That's where my "bus fare" comment came from.  At the rate things are going with that unit, you'd have to hope bus fares twenty years from now are not very high.

Possible refrack down the line or still more wells?

I really dunno.  I think gasco more likely to expend resources to develop more promising shale.  Could be in error.  The earlier wells, frack jobs, etc., are not as good as what is happening today.  Maybe there is hope.  Time will tell.

Permalink Reply by wyalusing jim on April 27, 2015 at 11:16am

agreed frank, the answer to this question depends to a great extent on the quality of the shale.

I don't think that refracs will be common in low quality shale either, it's purely economics again.

but remember, Utica aside (which is still an unknown in bradco), there are both the upper and lower Marcellus to be considered as well as downspacing where applicable. chk and cabot at least have already downspaced wells for testing. cabot has some spaced at 500' and chk at 700'.

and as joseph points out, you really have to know how your producer is managing those wells. with ourchk wells, production has been severely curtailed except when better prices come around and then production goes back up to near ip levels after 4 years.

wj

Permalink Reply by Zack Jameson on April 27, 2015 at 4:43am

wyalusing jim

Your words are very encouraging. I'm gonna have to say that you gave a very good answer because I feel the same way. A gut instinct perhaps? My thinking is, millions upon millions of dollars have been invested in putting these wells in place. These companies aren't stupid. They aren't investing in something that will be a flash in the pan. The royalties will be coming for years and years. Obviously, there will be a decline all along the way, but that's to be expected.

In my area there are gas wells that were drilled way over 50 years ago and they are still producing. Not so much, but still putting out. This is in the Majorsville, WV area. I believe they belong to Columbia Gas which years ago was called Manufacturers I believe, but that was way before my time.

Permalink Reply by Mike Fulper on April 27, 2015 at 7:59am

Most of the horizontal fracked OIL wells in SE Ohio drop off real quick

All you have to do is read the ODNR quarterly report

Over my way the wells drop off 80% in 6 months...

but will produce at a low rate for years....

The GAS wells I think over towards the river will produce gas for much longer periods...

OIL  drops off quickly...

Permalink Reply by Joseph-Ohio on April 27, 2015 at 11:24am
Mike,

How much of it is decline vs. management (choking back) ?

Why produce it and store it, waiting for prices to rise from SA dumping so much production on the world ?

It can stay in the ground as a raw natural resource and be stored for no additional expense.

Being the cynic that I am / have become I can't help but think decline isn't the whole story here / as bad as they would want their lessors and the unleased to think. Saddest part is that no one can prove what's really going on and those that really know ain't talkin'.

Just gives those who think about these things more to ponder.
Permalink Reply by Mike Fulper on April 28, 2015 at 6:12am

Very few wells are ever choked back..

NONE of the EQT wells were ever choked back.... Full 64/64 since first day of production

The oil companies want to make $$.... .now..... not 2 years from now...

Good thing they didn't choke any back.. Oil companies would have lost millions....

Permalink Reply by Joseph-Ohio on April 28, 2015 at 6:41am

Somehow I 'just ain't buyin into that' Mike.

A few others here don't appear to be either.

Oil prices are low bigtime from when most of those wells were developed and don't think they could predict what SA would do by flooding the market with bargain basement oil.

Some here say it's good for wells to be 'choked back'.

OK we don't see exactly eye to eye on this one.

No big deal - I'm good with it.

Later.

Permalink Reply by Mike Fulper on April 28, 2015 at 8:18am

You can go to the well head.. and read the "wheel"  its marked like a micrometer

Just ask your "well tender" to show you...

Im sure some wells are choked back if they cant remove the OIL.....

On the GAS wells.....I don't have a clue...but if they cant remove the gas either

very easy.. im sure they hold back...

When the OIL was $100 a bbl.. I ASSURE you the oil companys were wide open...

Permalink Reply by Joseph-Ohio on April 28, 2015 at 8:32am
I'll agree to that Mike.

$100.00 / bbl (and buyers) would paint a different picture.

Comes to mind wondering again if there aren't OPEC sweetheart deals out there that pay SA $100.00 / bbl (on the down low) / kickbacks happening among the Middle Eastern / European producers and customers ? You know just to wage economic war with the USA / the 'West'. What does the word 'War' mean to our enemies ? What does the word 'War' mean to us / our leadership ? Where do folks draw the line ?

Not being an 'Insider' / 'Connected' / and being the eternal cynic that I am; and considering we're at war with numerous Middle Eastern Radical Groups - I can't help but wonder myself.

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