Mineral Rights

[two_bit_score]

Do you have a specific example where the severance taxes and "other costs" exceed 10% in your area? If so, then most certainly it is wise to consult a knowledgeable attorney to minimize your exposure to those costs.

This forum serves a good purpose in identifying some of the risks to the landowners. That doesn't mean that all of the information here is reliable for assessing the severity of those risks.

Not much use in getting too far into specifics because I have no idea what state you are even in for one and every case is very different because lease terms can vary so much. Some landowners have "cost free" leases but still have costs taken out that they dont realize for years.

There are many terms used in regards to og&m leases that are interpreted diffently by parties. When I am referring to "costs" I am not referring to taxes but to the costs applied by the producer and operator under the terms of the individual lease. Although they vary greatly all costs including all taxes will almost certanly exceed ten percent of the gross.

Your last sentence is very accurate. I would not recommend anyone rely on information in a forum like this for assessing any issue in an og&m lease except fr the most general and casual terms.

If you do not know exactly what you are doing or have someone very knowledgable and experienced guiding you then you will regret it. Once production begins you are stuck with the lease terms until production ends, which may be decades.

 

[two_bit_score]

For perspective, a well selling 30 mmcf of gas per day at $4.00 /mcf, is $120,000.00 per day gross revenue. Of course there are taxes and possibly other costs taken out of that amount, say 10%.

The formula to calculate royalties is simple math. (Your royalty fraction, say 3/16) times (the number of net mineral acres you own, say 40 acres) divided by (the gross acres in the unit or pool, say 600 acres).

A $1,350.00/per day royalty check, or $40,500.00 for the first month, can finance a lot of equipment. Many a farmer in Oklahoma and Texas has been able to afford to buy equipment because they had royalty income that the agricultural income from the land would not support. Of course, those are the farmers that didn't let some city slicker hornswogle them out of their mineral rights.

I went back and reread your post. Are you sure you figured the decimal interest correctly?

Are you saying that you expect to get a check for $40,500 a month for 40 ac in a 600 ac unit with a 3/16 royalty at $4?

 

[MMagis]

I went back and reread your post. Are you sure you figured the decimal interest correctly?

Are you saying that you expect to get a check for $40,500 a month for 40 ac in a 600 ac unit with a 3/16 royalty at $4?

I'm pretty sure his math is correct. That's is of course assuming a good well, but the money is more than a lot of people are realizing. Too many focus on the signing bonus.

 

[forgeblast]

I have seen some checks that big. Just keep 40% for taxes.
The signing bonus is just that a bonus, the real money comes from when the well hits the ground.
Being in the middle of the "debate" on fracking I can tell you only what I see.
1. Trucks are everwhere, and yes they have to haul in the water, but they have pumping stations for that.
2. The economy and housing market in our area are actually being shored up by the gas industry.
3. The govement in Pa has minimal regulation, and will have minimal regulation and has no serverence fees until at least the fall at the latest.
4. Many of the roads were destroyed by the trucks, but now that its summer most of the roads they travel on are being repaved and are in better shaped then they were.
5. will not get into the water debate, many of the places had methane seepage prior to the 1880s, at the same time drilling has made some of the places worse, I can understand the frustration, but will not condem the whole industry.
6. I know a lot of diary farmers who are able to put money aside thanks to the gas industry, which is rare
7. Its also a business opportunity, many fields are being taken out of production, people selling hay should make out pretty good this year.
8. The money trickles down, new barns, new tractors, resturants, etc puts people to work.

I think that most people are scared (in our area) because we remember what anthricite mining did to our area. (My grandfather at the age of 6, picked shale out of the coal (breaker boy) and worked his way up to a manager. We just do not want a repeat of polluted water, and huge expances of collum dumps/environmental waste lands. Many of the places I played in growing up were old dumps from the coal mines, we had one so big that it would intefear with tv reception(precable days).
I would like to see them work on the infrastructure, where the gas was not being shipped all over the country yet, but used in our area. I would like to see some indepentend testing and faster response to spills.
I did hear that they were going to put in a compressed natural gas refueling station, a couple of countys away, it would be nice to have the option to buy a cng vehicle.

 

[two_bit_score]

I'm pretty sure his math is correct. That's is of course assuming a good well, but the money is more than a lot of people are realizing. Too many focus on the signing bonus.

Checks can be any amount. $40,000 wouldn't be that far off on a lease with a really good well or a unit with several good initial wells. But maybe he just mis quoted his source. His scenario seems to follow an example given on a popular website royalty calculator which makes some assumptions that don't always hold true. Also other calculations come up with different numbers based on the amount of gas sold under different assumptions. The example greasemonkeyok quoted is at the higher end of the spectrum for volume sold.

 

[greasemonkeyok]

The royalty example used the 30 mmcf/day of production from wells noted in the news and earlier posts. These are exceptionally good wells as noted.

The other values are hypothetical, gas price, costs and taxes, net mineral acres, and unit pool size, in order to show the formula for calculating the royalty share.

U.S. Natural Gas Wellhead Price (Dollars per Thousand Cubic Feet) for March, 2011 was $3.90, the last figures available on a national level. Annual average last year was right at $4.00.

It is hard to say what an average number for taxes and costs should be. In Texas, for example, the natural gas severance tax code places a 7.5 percent tax rate on the market value of gas. The High-Cost Gas Reduced Tax Rate (i.e. extended lateral wells) is 0.0% to 7.4%. That is why I used 10% as a conservative number, but you may have examples, or a compilation of data, that shows this to be too low.

Unverified information from commentary on PA's proposed severance tax legislation: "The effective tax rate, after factoring in tax breaks and local property taxes assessed in other states, is lower than Montana (7.9%), New Mexico (8.4%) and Wyoming (10.2%). Pennsylvania’s effective tax rate of 7.3% would be higher than West Virginia’s rate of 5.8%."

 

[Wayne County Hose]

A ton of misinformation on this thread but it's the norm here. I live one county to the east of the OP, forgeblast. My gf owns property in Susquehanna County and a well is currently being drilled on the neighbors property. Her land is in the 640 acre plot to receive royalties. If all goes by the low estimate given her by the gas company I will be retired this time next year at the age if 46. She told me I will quit work and I will obey.

 

[greasemonkeyok]

A ton of misinformation on this thread ....

But not ALL of it is misinformation. It helps the uninformed if you identify what information you believe is wrong as opposed to just casting a cloud on all of it.

Don't spend any royalty money until you get the check. Also there is a high probability the first check will be the largest, and the rest will be less and less until the well depletes. You hope it will take decades to deplete, but it could take only weeks.

 

[Wayne County Hose]

But not ALL of it is misinformation. It helps the uninformed if you identify what information you believe is wrong as opposed to just casting a cloud on all of it.

Don't spend any royalty money until you get the check. Also there is a high probability the first check will be the largest, and the rest will be less and less until the well depletes. You hope it will take decades to deplete, but it could take only weeks.

Never said it was all bad info or that I know it all. In my position I have done countless hours of research. The only high probability of anything is a high probability of uncertainty. My best advice is don't trust me or anyone else. Do your own research.