Monroe 1-10 wrd 5h and finley 1-11 wrd 3h

On February 6, 2016 I granted a Surface Easement to Shell Western E & P for a single drilling site to drill two horizontal wells listed above. The Monroe 5H target zone is in section 10 and the Finley 3H target zone is in section 11. The proposed Finley 3H is directly in between the Finley 1H and Finley 2H, both of which are producing. Does anyone know if either the Monroe 5H or the Finley 3H have been permitted or started drilling. I can attest that as of June 19, 2017 I have not received any royalties from the Finley 3H. I do not own a royalty interest in the Monroe 5H or any other interest in section 10.

Cannot find any permit info on the Finley 3H, but the Monroe 1-10 5H was drilled and completed (completion filing attached)

302-Monroe1_105H_TXCompletions153970ca1b9a4e2abb48791bf6689305.pdf (21 KB)

Thanks you so much for the information. The plan was for Shell Western E & P to drill both wells from the same drilling pad producing a substantial savings. The Finley 3H is a development well situated equidistant from the Finley 1H and the Finley 2H running in the same direction. I thought that Shell would have drilled the Finley 3H first. However, there are 4 other Monroe wells in section 10 so the 5H was also a development well.

I still have not found any information on the Finley 3H.

I just looked at the production data for the Finley 1H and 2H - these are not very good wells. Only started producing at 300-400 BOPD per well and total lease (both wells) now only making 100 BOPD five years after first production. The cum production for these two wells is weak and possibly uneconomic when you consider discounted return on investment.

Production curve for the lease is attached.

These two wells are about 1350' apart - infilling with the 3H and putting the laterals closer together doesn't make much sense considering the performance of the first two wells to date.

And the first two wells are holding the leases by production (HBP) - so no reason to drill at today's O&G prices.

301-FiunleyHzleaseproduction.pdf (67 KB)

Finley wells were drilled on 2012 and are most likely in Bone Spring formation. So leases would not necessarily be holding Wolfcamp formation. In this area a lot of leases have been extended or replaced with Wolfcamp and deeper depths. New wells are only being drilled in Wolfcamp which has multiple zones. Phantom (Wolfcamp) field is really 3rd Bone Spring and all of Wolfcamp.

Do your leases with Shell have vertical Pugh clauses which would release any rights located below the producing lateral depths?

Good point on the Pugh clause issue - if that was part of the original lease terms.

The original lease was with Seaboard. Seaboard drilled a shallow conventional well, the Stewart 1, which has been producing for 20 years. Seaboard farmed out the deep rights in 2011 to Chesapeake the result of which was the Finley 1H and the Finley 2H. I am certain that all depths are HBP.

The Finley 1H started production in November 2011. January 2012 8/8 production was 31,493 BO and 43,606 MCF. $3,006,356.10 8/8 oil revenue and $84,597.17 gas revenue and $200,881.20 NGL revenue. February 2012 production was 15,198.99 BO and 24,803.71 MCF. 8/8 revenue was $1,478,101.70 oil and $60,769.09 gas and $126,495.68 NGL. Prices were $95.49 oil January 2012 and $97.25 oil February 2012. Total net revenue after production tax for 8/8 lease total on the Finley 1H from 11/11 through 2/12 was $5,620,056.30. 8/8 net revenue for after production tax for calendar year 2012 was $17,544,266 for both wells. Calendar year 2016 8/8 net revenue after production tax was $1,598,719 for both wells.

The Finley 2H generally produced about 1/2 as much as the Finley 1H. Shell Western acquired the lease in April 2013.

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Thanks for the info on the lease - seems to confirm a theory that with the entire lease and rights HBP in a low price environment - why drill new wells now?

The production details are interesting - essentially a 50% production drop from month 1 to month 2. Those high prices probably put the well in payout and good economic mode. But this type of decline at $45 oil gets ugly economically (figuring $6 MM wells)

Agreed. The landman told me $8,500,000 per well if drilled on separate drill pads.

The January 2012 production was actually sales of product, not production. There is an extensive tank battery that holds 10,000 to 20,000 BBL of oil. I am certain that a substantial portion of the January sales were produced in December. I got my numbers from the royalty run, which is sales by month.

I agree that there is no rush to drill the Finley 3H except that when we were negotiation the surface use agreement for the drilling site, the landman told me that there was a $1,000,000 savings by drilling two wells from the same drill pad. So I was surprised to see the completion report on the Monroe 5H and no activity on the Finley 3H. Clearly, the rig has moved off lease. I'm starting to feel that the whole surface use agreement for two wells was a ruse to get me to agree to drilling a well on my property in which I don't have a royalty interest. I did charge them extra for the off site well (Monroe 5H).

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For offsite well (drilled on your surface for wellbore for adjoining lease and not producing under your surface) you should charge for surface damages for well pad plus pipeline ROW for wellbore under your surface. If wellbore is say 10,000 feet before it crosses under adjoining tract, this can add up.

I charged them the University of Texas rate.

The 8/8 volume numbers for sales:

Finley 1H

11/12 1,658

12/11 7,501

1/12 31,493

2/12 15,198

3/13 18265

4/12 10,412

5/12 11,454

6/12 9,333

7/12 8,442

8/12 10,463

9/12 6,750

10/12 5,053

Finley 2H

8/12 9,329 (First Production Month)

9/12 12,857

10/12 9,145

November and December 2012 production was paid in 2013.

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Total 8/8 oil production paid (sales of product) in calendar year 2012 167,353 BO.

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Good morning Mr. Finley.....my name is Barb Patton a member...please call me at 5738983099....I am owner of Finley 1 -2 well s (land and minerals) it is wed 19th please call me thanks

Jennifer Schmidt Phone # 832-■■■■■■■■ fax # 832-■■■■■■■■ Division Order Team Lead, Shell Western E & P

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I do not have a number for Luis L. Martinez

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Barb:

My April 25, 2017 Royalty statement was 45 pages. March 25, 2017 statement was 24 pages. February 25, 2017 was 19 pages. January 25, 2017 was 7 pages. 7 pages is the normal amount of detail.

There were numerous adjustments to prior periods. Shell is required to give you "An Accounting" of any adjustments to royalty payments. They are also required to file production and payment information with the Texas Railroad Commission.

Robert K. Finley, CPA

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Barb:

Railroad Commission Data:

Lease ID # 42335

Finley 1H well API number 47535866

Finley 2H well API number 47536069

The operator is only required to file production reports with the Railroad Commission. They are not required to file payment information.

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Shell Western E & P operator number 774719

Field Name - Phantom Wolfcamp

Field # 71052900

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great information THANKS BARB