Forth Worth League of Neighborhoods - Gas Well Driling101
1. Gas Drilling 101
Fort Worth League of Neighborhoods
Educational Event
October 23, 2007
2. Agenda
Gas Drilling Basics
•
Lease Considerations
•
Financial Terms and Royalties
•
Tips for Neighborhoods
•
Resources
•
3. Disclaimers
• To lease, or not to lease, is an individual
decision.
• The FWLNA is only providing information
and is not making any recommendations.
• The information being presented may, in no
way, be construed as legal advice.
• The FWLNA is not in the oil and gas
business or receiving any funds from the
industry.
5. The Barnett Shale
A layer about 600 feet thick which was deposited 300-320 million
years ago when this area of the world was part of an ocean.
Small organisms were imbedded in the mud and were trapped
as the mud hardened to rock. The organic material decomposed
and produced methane (natural gas). It has been there for these
hundreds of millions of years waiting for engineers to develop a
technology to extract economically.
• 1980 - Discovered as potentially economic resource
• 1995 - Significant research made to make resource economic
through stimulations and testing of horizontal wells.
• 2002 - Horizontal drilling & fracturing becomes mainstream
for development.
• Currently there are over 6,000 gas wells in the Barnett shale
and 580 active in the city of Fort Worth.
6. Gas Drilling Issues
Bonus
•
Royalty
•
Drill Site Location
•
Surface Usage
•
Transportation Costs
•
Post Production Expenses
•
Pooling
•
Mortgage, Insurance, Property Taxes
•
7. Facts to Consider
• Process takes a long time
• Difficult to get real information from
leasing agents
• A lease is a legally binding document
• The fine print is there for a reason
• The terms are important as well as price
• Urban leasing is different from rural
8. “Landman or Broker”
Not the operator of the well
•
Paid if leases are signed
•
Not used to “urban” leases
•
Think they have a right to drill
•
Known to use high pressure tactics
•
– Hurry or you will be left out
– Often confuse the issue
– Promise more than they can deliver
9. Leasing Contacts
Four Sevens Energy Western Production
• •
Colt Exploration Continental
• •
Turner Drilling PFM
• •
Paloma Davis
• •
Dale Resources Holland
• •
Fort Worth Energy Mitchell
• •
10. Definitions
1 mcf = 1 thousand standard cubic feet
•
1 mmcf = 1 million standard cubic feet
•
1 bcf = 1 billion standard cubic feet
•
1 tcf = 1 trillion standard cubic feet
•
Standard cubic foot = The volume of one cubic foot
•
of gas at 60° F and 14.7 psia.
• Engineers estimate there are 30 tcf of natural gas
in the Barnett Shale
• shale covers an area of over 5000 square miles,
including Fort Worth.
11. Drilling Terms
• Drill site - A 2 to 4 acre area for drilling wells.
Ultimately surface equipment is normally
located at the site.
• Lateral - horizontal drilling up to +/- 5000 feet
from the drill site.
• 8 to 12 wells with single laterals may be drilled
from a drill site.
12. Side View of Horizontal Well
Water Sands
Casing Cemented to Surface
Steel Surface Casing Set
Below Water Sands
Steel Production Casing
Cemented in Place
Steel Production Casing
Barnett Shale
Cemented in Place
7,000’ Deep
Normally < 5,000’ in Length
13. Top View of Horizontal Wells
Surface Hole
Locations
Bottom Hole Bottom Hole
Locations Locations
14. Drilling Flow Process
GAS COMPRESSOR
C
M
SEP
WATER DEHYDRATION
SEPARATED WET GAS UNIT
GAS PRESSURE IS
FROM GAS METER
INCREASED THRU
THRU
COMPRESSOR
SEPARATOR
ON SITE
H2O
TANKS
GAS IS DEHYDRATED TO
REMOVE WATER TO
PIPELINE SPECS
M
DRY GAS
GAS IS PROCESSED FOR
METER
RESIDENTIAL &
COMMERCIAL USE
WATER TRUCKED TO
SALT WATER
DISPOSAL WELL
GAS PROCESSING PLANT
15. COMPRESSOR
SEPARATORS
WET GAS
H2O TANKS METERS
Gas Well Surface Site
17. Compressors
• The two most common applications for Compressors.
Gas Compressors are used to Gas Compressors are used to gas
increase line pressure from the lift water from wells. In this
well to gathering or distribution application compressors run 24
lines. In this application hours per day and for shorter
compressors run 24 hours per day periods (<2 months)
and for long periods (20 years?)
Gas is injected at 700 – Compressor increases
900 PSIG between the from pressure from 400
tubing and production PSIG to 900 PSIG
C
casing to lift water.
Line C
Gas flows
Compressor
Pressure is Line
900 PSIG
increases
400 PSIG Pressure is
After
pressure to
Before 400 PSIG
Compressor
900 PSIG
Compressor Before
Compressor
18. Relevant Facts
• Drilling Time - 20 to 30 days per well
• Fracture Stimulation Time - 4 to 10 days per
lateral
• Flowback Time – Approximately 21 Days
• Gas production - Over 20 years
19. Flowback
• Over 100,000 Barrels of Fresh Water Pumped
During Stimulation Process
• Initial water is nearly fresh and as load is
recovered water becomes more saline.
• Flowback Time – Approximately 21 Days
- During Flowback which is usually 21 days
a water truck will haul water from the drill
site every 15 to 30 minutes around the clock
20. Water
• Fresh water zones are isolated from wellbore by cement and three
strings of pipe. Producing gas zones are over a mile below the fresh
water intervals. Risk of contamination is low.
• Water pumped into wells is generally less than 15 PPM Cl- (fresh)
and is from various sources.
• All produced water is trucked off of location and is disposed of in a
commercially permitted salt water disposal well.
• No commercial disposal wells currently exist within the City of Fort
Worth. Locations are outside the city.
• Water injected into disposal wells is placed into brackish or saline
zones well below fresh water intervals.
• Barnett Shale water usage accounts for 1 to 2%of resource supply.
22. Quality of Life Issues
• No drilling within 600 ft. of homes
• Noise restrictions to 5 db above ambient
• Restriction on Truck Traffic through
neighborhoods
• No eminent domain use (drill site or gas
lines)
23. “What you are signing”
The common lease states - quot;Lessor hereby warrants and agrees to
•
defend title conveyed to Lessee hereunder ...quot;
If you do not clearly own the interest, this means you are responsible
•
to defend the interest. By signing the lease you assume the liability to
defend the title should another possible owner come forward or
should subordination of your current mortgage be required prior to
payment of royalties.
Most deeds to property in older neighborhoods make no mention of
•
mineral rights. Generally, unless mineral interests are withheld in
conveyance the mineral interest is conveyed with the surface.
According to a real estate agent in our neighborhood, agents are
•
asking sellers to prove they own the mineral rights and put that in the
new deed as to whether the mineral rights go with the surface
ownership or stay with the seller.
The estimated cost for an attorney to document and prove ownership
•
of the seller's mineral rights may be $1000-2000.
24. “Other language is out there”
For example
• Common language used to address the
aforementioned slide/situation that removes the
liability from the Lessor or Home owner
– quot;Lessor makes no warranty of title to the leased premises
whatsoever.“
• For more information on Leases, see the FWLNA
Website for “Leasing 101 – What to know before
you sign your lease.”
25. Show me the MONEY
James Huling, Kiamachi Energy Corp
26. Financial Terms
• Bonus - Cash paid to the mineral owner for signing a lease. The
amounts have increased over the last year from $500 per lot to
$10,000 – $12,000 per acre and usually based on surface acreage.
• Royalty - A percentage of gross sales of gas produced. Most
recent offers are 25% proportionately reduced your percentage of
acreage within the unit.
• Subordination- Many mortgage companies require this
agreement before they will allow the energy company to
27. Financial Terms
• Severance Taxes - All production is taxed by the state between
2.5 to 7%.
• Ad Val. Taxes (Property Taxes) – County taxes billed every year
and normally run 2.5% of revenue.
• Federal income tax – Your bonus, and revenue from royalty are
subject to federal income taxes.
28. Estimate of Royalty
Several factors go into estimating the amount of
royalty you can expect to receive. Some of the
factors include:
• Estimated recoverable gas and production profile
per well.
• Amount of acreage included in production unit.
How many acres are pooled together per well.
• Gas price
• Gas quality
• Taxes
29. BASIS FOR “THE MONEY”
• Used industry published financial data that is
subject to Sarbanes-Oxley Act.
• Estimates from Landmen or Brokers are usually
higher and may be optimistic.
• Developed mathematical equation to fit
published performance.
• Made economic projection based on expected
performance
• Adapted economic projection to simple
spreadsheet for a more simplistic model
30. CHK main website: http://chkenergy.com/
Page 15 of the August 2007 presentation: http://phx.corporate-ir.net/phoenix.zhtml?c=104617&p=irol-presentations
31. Quicksilver main website: http://www.qrinc.com/
Page 14 of the June 2007 presentation: http://www.qrinc.com/investor_relations/presentations.shtml
32.
33. WHERE’S THE MONEY?
+/- $50 per month
(before federal income tax) over
a 20 year period
34. Don’t Forget NA Bonuses
• Energy companies do fell its important to
invest in the neighborhoods they are
drilling.
• Many NA’s have been able to negotiate
donations as high as $75,000 to be used for
playgrounds, schools, community centers
or other quality of life improvements.
• Make sure this is part of your negotiation.
36. SUMMARY
• An average urban lot can expect to receive somewhere between
$30-$50 per month in royalties based on published production
rates.
• In the state of Texas mineral rights take precedence of surface
rights. Make sure surface use restrictions are “iron-clad” to insure
your property is not disturbed.
• Restrictions need to be in the lease. Ordinances may not be
punitive enough to insure compliance.
• Ordinances and regulations can be modified through legislative
change.
• The League of Neighborhoods recommends not supporting a lease
that does not insure the quality of life in your neighborhood.
• Neighborhood’s that stick together have successfully obtained
leases that protect their neighborhood.
• Neighborhood’s that stick together have negotiated terms that are
far more financially advantageous (higher bonus and royalty as
well as lower deductions and favorable language.)
37. Neighborhood Top 10 List
1. Stay Together & Act as Group
2. Do not get in a hurry, offers do go up
3. Understand all the parties involved
4. Talk to other neighborhood associations
5. Do not give legal advice
6. Do not be intimidated
7. Consider safety and quality of life issues
38. Neighborhood Top 10 List
8. Get the FACTS
9. Communicate
E-mail
–
Phone
–
Meetings
–
Flyers
–
10.Obtain legal assistance
39. Gas Drilling Resources
• Barnett Shale • Drillsite Broadcast
Newsletter • Barnet Shale
• Barnett Shale Blog by Education Agency
Fort Worth Star
Telegram
• FWCanDo.org
40. Gas Drilling Resources
• FWLNA Website • Royalty $ Tool
– New Section for – Calculate your royalty
Resources for your lease
– Includes Gas Drilling • Lease Rates
101 & Leasing 101 Comparison Chart
– Compare your offer to
those others have
received
FWLNA has formally requested that the Mayor and
Council reconvene the gas drilling task force and conduct
an analysis of the situation to date. A time out to make
sure our ordinance is working effectively and efficiently.
42. Closing Thoughts
• The Fort Worth Gas Drilling Ordinances do
not factor zoning into permitting process.
• In the state of Texas mineral rights take
precedence of surface rights. If you do not
own the minerals you can not stop the
development of minerals.
• Neighborhoods sticking together are the only
means currently available to push drilling and
operations to desired surface locations.
43. Special Thanks for Help on
this Presentation
Wendy Davis, Councilperson for District 9
Ed Ireland, Director BSEEC
James Huling, Kiamichi Energy Corp
Bill Hall, Mayor of Park City
Sarah Fullenwider, Attorney for City of
Fort Worth
