Haynesville Shale royalties: The real 'cash cow'

Published: Aug. 14, 2008 at 8:22 PM CDT|Updated: Feb. 16, 2010 at 10:20 PM CST
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by Jeff Ferrell

SHREVEPORT, LA (KSLA) - As big payouts begin to filter through the local economy from the Haynesville Shale, we wanted to draw a clearer picture about the amounts of money changing hands.  Much attention is focused on lease bonus payments; how much a property owner is paid per acre.  But, that's just the tip of the iceberg.

Oil and gas consultant Bill Pittman did some calculating for us on potential royalties and production levels per well.  "It'll come in producing five, ten, fifteen million cubic feet a day.  But it's going to drop rapidly," described Pittman.  In fact, he estimated a 75-percent drop in production the first year alone, along with big drops in years two and three.

So, Pittman estimated a royalty payment after production drops to a baseline of 1-million cubic feet per day after a few years as, "seventy-five dollars per month for one acre in a 640-acre drilling and production unit."  Seventy-five dollars seems incredibly low, compared to the numbers batted around by the general public.  But Pittman said a huge bonus for the Haynesville Shale is how 'tight,' or compacted it is.

Such a formation requires more wells.  He's learned of estimates that eight wells may be necessary in a typical 640-acre unit.  If you calculate eight wells, instead of just one, that 75-dollars quickly becomes 600-dollars per acre every month.  For someone with 40-acres that's 24-thousand dollars every 30-days.

We checked back in with C.C. Canady in southwest Caddo Parish, and her one woman campaign to help those who feel defrauded with their gas leases.  She described royalties as a silver lining for people like for herself.  "My royalty on just twenty percent, my check each month would be like 8-thousand dollars, six hundred 57-dollars and 23-cents.  That's a month.  I wouldn't have to go to work. (laugh)"

Since our story first aired about her earlier this month, Canady now estimates that at least 15-hundred people have contacted her by phone or email with complaints about their lease contracts, with some complaints about royalties.  "That's another problem that have people contacting me, the wells have been in production, nobody's receiving royalty checks," continued Canady.

Pittman said a 6-to-8 month lag to clear titles is not unusual before the first royalty checks begin to arrive.  But, any longer delay than that might require a phone call, to check it out.

As for the calculations on royalties in this story, we used the latest market price of natural gas at 8-dollars and 40-cents, or 8-dollars even 'after taxes.'  As that price changes so too will the royalty payments, up or down.