Does a decline in gas production foretell additional wells?

Our royalties were averaging around $800 per month from both Cimarex and Chevron for about 4 years, but the past few months have declined to around $350 per month from both operators. However, the offers to buy the mineral rights continue to skyrocket despite these lower royalties.

I do realize that the first 5 years are the most productive for a well (the wells have been in production for about 4 years). For those in the know, is declining production from previously quite stable producing gas wells a general indication of impending drilling/wells to be conducted nearby? I mean, do producers “cap” production a bit on existing wells in order to ready for drilling into another layer, or nearby?

Property specifics detailed below:

43 acres - T1S BLK 59 SEC 40 A-2297 T and P RR/Shelton AE Well: Street Sense 40 Unit No. 1H 10 acres - T1S BLK 59 SEC 39 A-2705 T and P RR Well: Stone Street 46 Unit No. 3H

Thanks,

Traveler

The offers continue to skyrocket because really good wells have been drilled in neighboring sections. I wouldn’t sell that acreage unless I desperately needed cash, and certainly not under $30,000 per nma.

Declining production is no guarantee that a new well will be drilled across your tract and generally are just a natural part of the well. Sometimes producers will shut in nearby wells during a frac / completion so the pressure doesn’t damage them. But a quick look at your wells says its just part of the decline rate.

Decline rates for horizontal wells can be 70% in the first year, with another 50% drop the next year, and a long tail end of slower decline. Natural gas production usually drops off a lot slower from horizontal wells than oil production. The Street Sense and Stone Street wells both had very gentle declines on their gas production. For visual of typical decline rate, see red line in this graph: http://www.getfilings.com/sec-filings/120326/Laredo-Petroleum-Holdings-Inc_8-K/g79241mmi021.gif

Sorry. I think I went on a bit of a tangent.