Ohio shale owner oil and gas royalty interest?

By Roger Kramer, CPA, CITP

May 31, 2012

Energy giant Andarko Petroleum recently reported results from 2 oil and gas wells in Ohio's Utica shale. (Such wells use horizontal boring and fracturing techniques to maximize production from the shale.)

A mineral lease lessor frequently receives one-eighth (12.5%) of the sales of oil and gas from a well. If there is more than one landowner in the well, that royalty is shared according to the portion of each lessor’s land.

A real world example:

The two Guernsey County wells online for about two months, averaged 167 barrels of oil and 308 thousand cubic feet(MCF) of natural gas per day. Assuming oil & gas prices of $100/barrel and  $6/MCF, first year production might be worth $6.8 million, with a landowner royalty of as much as $844,000.

Since production typically drops dramatically during the first year, the expected landowner royalty for the first year would likely amount to some fraction of this, maybe $100-200K.

 

Energy giant Andarko Petroleum recently reported results from oil and gas wells in Ohio's Utica Shale. (Such wells use horizontal boring and fracturing techniques to maximize production form the shale.)
A mineral lease lessor usually receives one-eighth (12.5%) of the sales of oil and gas from a well. If there is more than one landowner in the well, that royalty is shared according to the amount of each lessor’s land.
A real world example:
The two Guernsey County wells online for about two months, averaged 10,000 barrels and 18 million cubic feet of natural gas Assuming an oil price of $100/barrel and gas price of $6 per thousand cubic feet(MCF). At those levels and prices, annual production would be worth $13 million and landowner royalty $1.6 million.
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