This well Sec. 14-T149N-R99W, well no 21297 is a mediocre well, pumping 82,000 BLS since Jan. 2012. Decline is significant but appears about normal. I am given to understand that the Three Forks could be drilled from this location, and that is what gives about $10,000 per acre value to this mineral interest. Current well is leased on 18.75% royalty. That probably would apply to other wells, but I am not sure. I would appreciate any comment on the prospects for further wells on the site. Thanks. James
Sometimes an operator doesn't make the very best possible well. Do you realize that in the northwest corner of section 13, about 1/2 mile east from your well, Hess has spud and is currently drilling 4 additional wells? Sometimes you get a well that is not all it could have been. Don't feel alone I have six like that. Think of your mineral acres like a home and lot, your present well and the market may make things look a little depressed but then a couple to 4 new wells in the next year or three may give your acres curb appeal. If you want to sell, $10k would be the bottom for anything I would consider but I would turn that down too. You lost 81.25% of the value of your acres when you leased. Do you really think you are going to get over on the person or entity that wants to buy your minerals?. It could be Hess themselves through an intermediary wanting to buy you out before the permit spud and drill 4 more wells in your spacing. I would not even consider selling with a rig on my doorstep.
I would say at least let the rig leave the area. Having 4 brand new wells 5 total in the spacing right next to you is not going to drive prices down in the neighborhood, especially with more multi well spacings bracketing you at 2 to 3 miles distance. Nobody can say exactly when you will get more wells, but the spacings around you don't look appreciably better and they are getting additional wells so I think it's safe to say that you will get more wells.
Thank you for your thoughtful response. At $65/bbl profit, Hess now would have recovered $533k of their capex. They can expect this well to "pay off", probably in 3-4 or so more years. They have a pad and infrastructure to drill more wells, but drilling more in the same stratum is iffy, except that the drilling costs have come down to about $8MM, and I expect they are getting better and better efficacy. Seems to me that royalty investment success, if one paid $10,000 per acre, would be wholly dependent on how the Three Forks drilling comes out. To a great extent that is like trying to draw to an inside straight. That kind of play calls for diversification and good luck wouldn't hurt, either. Sounds like a job for "professional" (gambler). Thank you, again, and I would like to hear more thoughts on this.
James Eubanks said:
Thank you for your thoughtful response. At $65/bbl profit, Hess now would have recovered $533k of their capex. They can expect this well to "pay off", probably in 3-4 or so more years. They have a pad and infrastructure to drill more wells, but drilling more in the same stratum is iffy, except that the drilling costs have come down to about $8MM, and I expect they are getting better and better efficacy. Seems to me that royalty investment success, if one paid $10,000 per acre, would be wholly dependent on how the Three Forks drilling comes out. To a great extent that is like trying to draw to an inside straight. That kind of play calls for diversification and good luck wouldn't hurt, either. Sounds like a job for "professional" (gambler). Thank you, again, and I would like to hear more thoughts on this.
James, I think you dropped a zero there, but I think we are on the same page. You did not figure in about $500,000 (conservative) gas and all the lovely tax deductions for the well/plant itself, 15% depletion. A dollar saved is better than a dollar earned because you don't pay taxes on the dollar saved. Do you have post production costs? The operator is charging you to use equipment that they bought and deduct from their taxes, when actually, you are paying for it through post production charges, if you have them. I'm not absolutely sure but I believe that the operator gets depletion on gas they flare. You might want to revise your estimate up.
James, just because your well is not setting records does not mean it is not going to be profitable. Just to the east of you there are 4 additional wells going in. The production of the original well is not appreciably better than yours. Ask yourself, why are they drilling there? I watch the herd movements, when the herd moves out sharply, I don't need to see the predator to know that there must be one. Hess did not start drilling 4 unprofitable wells next door to you. I won't ask you to trust me, but you can trust the greed of the operator, usually. I have some faith in the operator that they will do what they can to make a profit. I highly doubt they are drilling 4 different formations either, possibly 2 Bakken and 2 Three forks. The fracking does not really extend very far, as least as far as being effective. Just a little more to chew on