sneaky_pete
Platinum Member
- Joined
- Aug 10, 2004
- Messages
- 677
- Tractor
- Kubota B7400HSD, G1800
</font><font color="blue" class="small">( 1. What is the process to get the gas from shale rock? I know it involves drilling a well, but I don't think it "flows" like a natural gas field, ie, not gas under pressure.)</font>
You are correct; shale gas molecules are adsorbed on the shale, and a pathway for them to move into a wellbore must be created by massively fracture stimulating the well. Very expensive, but with gas at $13/mcf it is now economical. Also, many shale gas wells can be re-frac'ed every three to five years and brought back up to their original production rate.
</font><font color="blue" class="small">( 2. They are making offers to even folks with a half acre size lot. This makes no sense to me, unless possibly that anyone sitting over the "Shale Play" area might possible be intitled to royalties since the gas is actually coming from under all of our property. Could that be the reason they are trying to snap up all the mineral rights? I don't see why they would pay any money for something as small as a half acre,unless they were guaranteed at least the return of their investment. And I don't see why they would bother putting a well on this half acre, if they could just move over 500 feet and put the well in there.)</font>
They can (in fact must) pool small interests to make enough acreage for a drillable proration unit. This is heavily regulated by each state, and each state's laws are slightly different. How many acres of minerals or leases required for each well depends on the depth of the well, the geologic formation it will produce from, the field rules already established by the state for that field and/or formation, and whether or not the well will be drilled vertically or horizontally. Typically, you would need at least 40 acres to drill a vertical well and several times that for a horizontal well, but this varies from state to state and field to field.
As to why they can't just drill anywhere, geology usually dictates where the best place to drill a well will be. In a shale gas play like the Fayetteville, you must avoid subsurface (old) fault zones that will channel water into the well when fraced and kill the gas production, and 500' could easily be the difference between a good well and a dry hole. The good news is, directional drilling can allow the oil company to put the surface location someplace agreeable to all parties and still reach a bottom-hole location thousands of feet away. It just costs more money.
</font><font color="blue" class="small">( 3. If they put a well on the property next to mine, could I possibly have a royalty claim, as it is more likey than not they are also pulling my gas/oil out from under me? Seems to me it should work like the Alaskan Pipeline royaltys, since it is coming from under all of our properties.)</font>
In theory yes, but it all depends on how they draw the proration unit for the well. As I said, this is highly regulated by the state, to protect the mineral owner and to prevent waste. That is why they are contacting you about buying or leasing your minerals; they are trying to include you in a proration unit - but if you will not lease, then they will have to find a way to draw a different proration unit that will include your neighbors who do want to lease and get the lease bonuses and production royalty payments.
</font><font color="blue" class="small">( The way they are "selling" it now is, lease us your rights for 3-$400 per acre for 5-10 year lease. We MAY come in and put in a well, (as they have on a few folks property), and we will give you 12% of what we pump out (based on a 640acre tract you lease them the rights to) so it would actually be a percentage of the 12 percent if you only had a few acres. How could this be even an attractive offer to a small land owner?)</font>
Yes, it will be extremely attractive if they make a good well. Remember too that those figures and percentages are negotiable - that is just their first offer, and they will come up some from that.
</font><font color="blue" class="small">( I don't trust em.)</font>
That is your perogative, but producing oil and gas royalties have made a lot of land owners wealthy. As others have said, protect yourself by having an oil and gas attorney (NOT a real estate attorney) review any lease before you sign, and possibly to negotiate in your behalf.
</font><font color="blue" class="small">( 4. Any idea what they might be able to get out of one of these wells, dollar wise?)</font>
After spending $500,000 +/- to lease 640 acres, a couple of million dollars to drill and frac the well, if they are lucky it may produce 1-3 BCF (Billion Cubic Feet) of gas. Gas is selling for around $13/MCF today, so that means over the total lifetime of the well it might gross 13 to 39 million dollars, minus taxes, royalties, and of course the several million dollars it took to do the geology, lease the minerals, and drill the well. Of course, there is always the risk that well will produce much less, or nothing.
</font><font color="blue" class="small">( Any other thoughts, ideas, or suggestions would be much appreciated. )</font>
You are in a position to potentially make a great deal of money, at no (financial) risk to yourself. Many people would be happy to be in your position, but I understand that not everyone wants a well drilled on or near their property. As has been said, consult an oil and gas attorney in Arkansas.
You are correct; shale gas molecules are adsorbed on the shale, and a pathway for them to move into a wellbore must be created by massively fracture stimulating the well. Very expensive, but with gas at $13/mcf it is now economical. Also, many shale gas wells can be re-frac'ed every three to five years and brought back up to their original production rate.
</font><font color="blue" class="small">( 2. They are making offers to even folks with a half acre size lot. This makes no sense to me, unless possibly that anyone sitting over the "Shale Play" area might possible be intitled to royalties since the gas is actually coming from under all of our property. Could that be the reason they are trying to snap up all the mineral rights? I don't see why they would pay any money for something as small as a half acre,unless they were guaranteed at least the return of their investment. And I don't see why they would bother putting a well on this half acre, if they could just move over 500 feet and put the well in there.)</font>
They can (in fact must) pool small interests to make enough acreage for a drillable proration unit. This is heavily regulated by each state, and each state's laws are slightly different. How many acres of minerals or leases required for each well depends on the depth of the well, the geologic formation it will produce from, the field rules already established by the state for that field and/or formation, and whether or not the well will be drilled vertically or horizontally. Typically, you would need at least 40 acres to drill a vertical well and several times that for a horizontal well, but this varies from state to state and field to field.
As to why they can't just drill anywhere, geology usually dictates where the best place to drill a well will be. In a shale gas play like the Fayetteville, you must avoid subsurface (old) fault zones that will channel water into the well when fraced and kill the gas production, and 500' could easily be the difference between a good well and a dry hole. The good news is, directional drilling can allow the oil company to put the surface location someplace agreeable to all parties and still reach a bottom-hole location thousands of feet away. It just costs more money.
</font><font color="blue" class="small">( 3. If they put a well on the property next to mine, could I possibly have a royalty claim, as it is more likey than not they are also pulling my gas/oil out from under me? Seems to me it should work like the Alaskan Pipeline royaltys, since it is coming from under all of our properties.)</font>
In theory yes, but it all depends on how they draw the proration unit for the well. As I said, this is highly regulated by the state, to protect the mineral owner and to prevent waste. That is why they are contacting you about buying or leasing your minerals; they are trying to include you in a proration unit - but if you will not lease, then they will have to find a way to draw a different proration unit that will include your neighbors who do want to lease and get the lease bonuses and production royalty payments.
</font><font color="blue" class="small">( The way they are "selling" it now is, lease us your rights for 3-$400 per acre for 5-10 year lease. We MAY come in and put in a well, (as they have on a few folks property), and we will give you 12% of what we pump out (based on a 640acre tract you lease them the rights to) so it would actually be a percentage of the 12 percent if you only had a few acres. How could this be even an attractive offer to a small land owner?)</font>
Yes, it will be extremely attractive if they make a good well. Remember too that those figures and percentages are negotiable - that is just their first offer, and they will come up some from that.
</font><font color="blue" class="small">( I don't trust em.)</font>
That is your perogative, but producing oil and gas royalties have made a lot of land owners wealthy. As others have said, protect yourself by having an oil and gas attorney (NOT a real estate attorney) review any lease before you sign, and possibly to negotiate in your behalf.
</font><font color="blue" class="small">( 4. Any idea what they might be able to get out of one of these wells, dollar wise?)</font>
After spending $500,000 +/- to lease 640 acres, a couple of million dollars to drill and frac the well, if they are lucky it may produce 1-3 BCF (Billion Cubic Feet) of gas. Gas is selling for around $13/MCF today, so that means over the total lifetime of the well it might gross 13 to 39 million dollars, minus taxes, royalties, and of course the several million dollars it took to do the geology, lease the minerals, and drill the well. Of course, there is always the risk that well will produce much less, or nothing.
</font><font color="blue" class="small">( Any other thoughts, ideas, or suggestions would be much appreciated. )</font>
You are in a position to potentially make a great deal of money, at no (financial) risk to yourself. Many people would be happy to be in your position, but I understand that not everyone wants a well drilled on or near their property. As has been said, consult an oil and gas attorney in Arkansas.
