Pantego-Arlington Royalty Owners Association, Inc.
September Update
Highlight Summary
The Rig is Gone – What is happening?
Carrizo assembled its rig and commenced drilling on the first well the first week of May and completed drilling on May 23. The well reached from the TXU drill site northwest to the intersection of Grant Place and Country Club Rd, horizontal distance of about 2500’. After a pause of about 30 days, drilling was begun on the well into the property east of Bowen known as area B-2 in our lease. The drilling to the target depth was completed on July 13th and the rig was removed from the site. This well was routed north toward Park Row and then the horizontal bore was to the east, also a distance of around 2500 feet.
Was There Gas?
There are two steps getting a well to the production phase. What has been done so far is the first step. They have drilled a bore hole and provided casing (the pipe) that is 9 5/8” in diameter. It is the next step that will determine if there is gas production from the well. This is when the company brings equipment back in to fracture the shale and release the gas. They do this by using deep charges to perforate the solid casing that is there now. Then they will force millions of gallons of water into the hole to apply the pressure that releases the gas. We are told that his process is done in only several days. Carrizo is not planning to bring the equipment in to do this task until the end of this year or the very beginning of next year.
Why the delay?
There are a number of elements that have to come together. One of the things most important for royalty owners to recognize is that the first months of a gas well’s production are the peak, and the volume tends to decline fairly rapidly. Whatever amount of gas is being produced at the beginning, is likely have declined by as much as 40% by the end of the year. While the well could produce for 18-20 years (or more), a general estimate is that is will produce over 40% of all the gas it is going to produce in the first five years. To the company and the royalty owner, it would be far better to sell that large volume of gas at rates of $6 or $7 per thousand cubic feet instead of the present market rate of around $2.80 per thousand. So, obviously, since there is no way to store gas, most everyone would rather wait to take it to market until the price for gas improves. In addition, there are a number of operational matters that affect the decision including being sure there will be enough pipeline capacity to carry our gas to market once the pricing improves and everyone starts producing again.
When can I expect to get royalty checks?
The honest answer is “it depends.” Right now, Carrizo plans to finish only one of the two wells when they come back at the end of the year. They want to see if the gas production is sufficient to make it a commercially viable well. We do not know whether the one they will finish first will be the well east of Bowen, or the well west of Bowen. Whichever one it is will determine who gets the first royalty checks. Checks should follow the fracture and completion of the well by about 120 days. Then, assuming the well was a good producer and the company decides to go ahead, other completion and new drilling will occur. Remember, you will be sharing the royalties from one well with around 1000 others, so those first checks will be pretty small until more wells come on line.
How much will the royalty check be?
This is everyone’s question and it can’t be answered right now. It’s going to depend on how much production results from the fracturing. The six wells completed at UTA are extremely good ones. No one knows yet if the geology and shale gas content at UTA will also occur in our operation. In the early part of the leasing activity in 2007 we were basing our estimates of royalties on a well producing about 3 billion cubic feet of gas over its life. If the price long term were to return to the $7 level (per thousand cu. Ft.), that would mean this hypothetical well would produce about $20 million in revenue over its life, and the royalty owners of Carrizo would get 25% of that ($5 million). Carrizo has now formed the total pooled unit and we can see how large each of them is. That’s a big factor also.
What do you mean?
Carrizo and
What is the Chesapeake-Carrizo Agreement About?
You may recall that there was competition for signing by several companies back at the end of 2007. At the time, some of our neighbors signed leases with Paloma, Dale or
What is the responsibility of the Lease Committee?
The lease is between Carrizo and each individual property owner. But, in the lease, there were certain rights that lessors had to obtain information, to review acreage calculations and, when the time comes, to audit or review marketing agreements and revenue reports. In Exhibit C of your lease you appointed the Pantego-Arlington Area Citizens Lease Committee as your representative to perform several specific tasks. That group presently consists of
Contact information – Lease Administration
Carrizo Oil and Gas, Inc. 1000
Attn: Cathy Halata
For:
For questions about acreage calculations, lease provisions, and general assistance
Lease Committee/Royalty Owners Association
Attn: Bob Griffin, Secretary 10bjgriff12@tx.rr.com
For general inquiries, problems with lease administration, and to provide the information specified in Exhibit C of your lease. Please inform us of address, email and phone changes, but the official records must be changed by contacting Carrizo.
This update is provided courtesy of the members of the Pantego-Arlington Royalty Owners Association. For membership information contact Bob Griffin at 817-261-5479, Membership is $10 per year (February 1-Jan. 31).
Monday, September 14, 2009
