The royalty payments are higher than they have ever been. Will the payments continue to be high or will they taper off? They are drilling horizontal wells H&GN Section 52 Reeves County
Hi Brenda -
All of the Wells out in the Permian "Come In" at high rates. It's referred to as "Flush Production". But over the first year to a year and a half, they "Settle" to anywhere from 25% to as low as 10% of the Flush Production rates.
They will stay there for many years, however, so it's not all bad.
Don't mortgage it and don't run up a bunch of credit card debt.
Hope this helps -
Charles Emery Tooke III
Thanks Charles - With more wells drilled over the next few years, will that keep the Flush Production going even longer? To get only 25% thereafter, will be like the low payments I've been getting for 30 years. I was hoping that more drilling will keep the payments alive.
Each new Well will bring it's Flush Production with it, which is the fun part.
But you need to note that unless someone in the Unit has a Continuous Drilling Clause in their lease it may be a while before they get around to drilling the remaining possible locations.
Every company in the multi-County area has a ton of acreage under lease that they need Unitize and drill at least one Well in order to hold it all by production.
If the Well they have drilled in your Unit holds all of the acreage and nobody has a Continuous Drilling Clause in their lease, the company will be off drilling other Units they have under lease in order to bring them into production.
Once they have all or most of their acreage Held By Production, they will begin to drill the remaining possible locations.
Either that or have a Psychotic Episode.
Howdy Brenda; You had also ask how far in horizontal drilling they are and will horizontally go more thsn 2 miles? Horizontal drilling has gone as far as the commercial length of DFW Airport runway is long on the surface. Production coukd show variations to watch for.
Thank you Charles - Very interesting to know that they can hold the Unit indefinitely if they have drilled at least one well. If a Continuous Drilling Clause is not common or not attractive to drilling companies, then we probably don't have one. That could leave us waiting for a long time. Not sure why a 3 yr. lease with 2 yr option would tie us up for 10-20 yrs just because they drilled one well.
The upside is, if/when they drill the other locations the 10% to 25% Settled production will equal or exceed the Flush Production from the one Well. Something to look forward to for your later years.