I am very new to this Forum. I have received my first royalty check for a new producing well. The production dates were from 9/18 to 12/18. My question is do newly producing wells continue to produce as much as from the date they started producing. I guess I am asking should I anticipate a royalty check equal to the first royalty check? Thanks for any information you can provide. The well is operating under RimRock.
You don’t give any information as to the State and County your minerals are in, so it will be difficult to give you a very precise answer. However, generally speaking, a well will decline quite rapidly over the first year or so and then continue to decline at a lesser rate until it eventually reaches the point where it doesn’t produce enough to cover the costs to continue to operate it, after which it will be plugged abandoned. So, it is not a good idea to adjust your lifestyle based on the first few months of production. Plus oil and gas prices go up and they go down, and wells can have mechanical problems further putting your income stream in doubt.
Again, if you gave more specific information as to your location, someone here can probably give you a better idea of what to expect.
Sorry about that. Garvin County, Oklahoma. No plans of adjusting my lifestyle, although the first check was very impressive. Just curious on the next few royalties. I do understand the ups and downs of the gas prices.
In addition to the points Steve mentioned, another obvious reason you should expect your future monthly royalty checks to be smaller is that you said that first one covered production accumulated over four months and future checks will normally be for just one month of production.
You should be able to tell from the coding on the stub that came with your check how much of the total royalty related to each separate month of production. The first month period that production started being reported may actually have been for only part of that period, not from the 1st through the last day of that month. Wells can also take a while to reach a normalized production level and on ones that have been fracked the production may be held back initially due to the volume of frack water being recovered. or other mechanical reasons.
With that in mind, the amount of royalty your last check showed was related to that 4th month of production may be a pretty close estimate of what your next check will amount to.
As a very general rule, a well will never make more oil & gas tomorrow than it did today. The reservoir is finite in the amount of oil & gas contained therein and it is depleted with each produced barrel/mcf. The only variable that can change that is the price of the product.
There is a possibility that more wells will be drilled therefore more barrels/mcf produced. Additional zones maybe drilled/completed that can change the equation as well.
Today’s horizontal wells usually deplete 80% or more of the production in the first year. Then the additional 20% over the next 10-15 years.
Hope this helps.
Todd M. Baker
Dana: The “decline curve” is the term for a graph of the rate of decline in production from a well. If it is projection of future production prepared by a reservoir engineer, it is likely more reliable than a decline curve of past (historical) production (volumes) from similar wells.
M_Barnes posted a decline curve in another thread a short time back. You might find it useful to look at that graph because it is not a straight-line decline. Shale wells are difficult to project because they do not follow Boyle’s Law.
Thanks everyone for the input!