Why have my royalties been decreasing?
Natural gas wells are a nonrenewable resource. Once production has started, the gas volume and pressure built up within the well will instantly begin to deplete. Gas production will always decline over the life of the well and will end some day. Many other variables can also affect royalty payments. Factors like current gas prices, planned or unexpected well maintenance, pipeline or compressor problems and decreasing reserve pressures all can impact royalty payments. Royalty recipients should be cautious in estimating monthly royalty payments in advance. The only time royalty monies are reliable is when the check is in hand.
Whose land do we use?
Although the location of a well site is the most obvious surface feature, access to other neighbors’ land may also be required. We need to build a road to reach the well site from the nearest public road. We also need to pipe the gas out to the closest major pipeline for transportation to market.
As a landowner you may or may not own the mineral rights below your land. Your property deed might indicate if mineral rights were possibly sold to another, or retained by some previous owner. Each well is permitted and regulated by the New York State Department of Environmental Conservation (NYS DEC). NYS DEC regulations allow for a Trenton-Black River well to draw from reserves covering an area as large as 704 acres. As a result, we may be interested in leasing the mineral rights below the land of several neighbors.
What happens if we want to use your land?
Fortuna has a staff of professional land agents who negotiate access, permissions, rights-of-way and leases with both private landowners and government agencies. These specialists try to negotiate win-win agreements with all of our landholders. We have over 9,000 leases and 800 royalty recipients in New York already.
Exploration activity starts with the written Lease Agreement with the landowner. If you are interested in leasing to Fortuna, go to our online Lease Request Form.
Each property owner should remember that every well is a high-risk venture waged on a significant potential reward. But, just as with any wager there is also a chance of ending up with poor production or even a dry hole.
How soon will my royalties be paid?
Although one could assume that production royalties would begin to be paid as soon as a well is on production, it can take several months to more than a year. The sequence of steps is outlined in the following list of activities. Government authorities closely regulate all stages, so every step must be completed before the next step can begin:
Land
- Secure oil and gas leases and access agreements.
Geology & Geophysics
- Shoot 2D and/or 3D seismic.
- Generate geological/geophysical maps to identify where the gas could be present.
- Determine the exact drill location based on surface constraints and geological/geophysical input.
- The exploration cycle can take several years.
Drill Site Identification and Permitting:
- Survey and plot the well: 1- 2 months.
- Apply for a permit from the New York State Department of Environmental Conservation (NYS DEC) - The permit application includes a designation of the boundaries for the well's spacing unit. The permit process can take at least four weeks and no construction can begin until the permit is received.
Drilling & Completion:
- Construction of a wellsite takes 1 - 2 months.
- Drilling a horizontal Trenton-Black River well can take 2 - 3 months.
- If gas is found, the wellsite is prepared for production (completed), which can take 2 - 3 weeks.
Pipeline Construction:
- A permit for pipeline construction from the New York State Public Service Commission (NY PSC) can only be applied for once the gas reserves are proven. Timing depends on how quickly a series of environmental impact studies can be completed, reviewed and cleared. The pipeline permit is contingent on several environmental issues. This can take 2 - 6 months.
- Pipeline construction can take another 1-3 months.
Payment of Royalties:
- Royalty payments will be paid monthly based on the proceeds from the well, typically within 45 days after the end of each production month.
- The royalty paid under your lease is also based on your share of the spacing unit.
What is the Life Expectancy of a Well?
The life of a well is a function of reserves and production rates with no two wells being alike. During this time, the well will experience declining production rates. These declines may be gradual or abrupt. No one can predict the production curve beyond the two following facts that:
- Monthly production will decrease over time, and
- Production will end some day.
