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Ohio shale owner oil and gas royalty interest?

By Roger Kramer, CPA, CITP

May 31, 2012

Ohio shale owner oil and gas royalty interest?

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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