Is there a way to calculate expected royalties based on what a company invests?
Example 1: A company provides a $100,000 lease bonus. They obviously expect to pull more than $100,000 out of the ground over a certain period of time. But can you calculate their expected royalties payments during, say, the most-productive period of time (which I understand is perhaps the first three years?
Example 2: A company invests $350 million in 46,500 net acres by the time they start their first test well (yes, this is Mitsui in western Haynesville). Can one calculate the royalties per acre Mitsui expects to pay during the same amount of time?
Rather than looking at the macro economics, consider the site specific economics with some general assumptions in evaluating acreage cost impact.
1280 AC Unit, Cost per acre $1000, 6-8 development wells, Well cost per well $12,000,000
With this scenario, the acreage cost is 1,280,000; however, the fully developed well cost is $72-96,000,000. This displays that acreage cost is a small component in the economics of the unit.
In the case of Mitsui, they are purchasing more than just acreage in the acquisition. There are existing wells, HBP acreage, existing facilities, and current leasehold. If they are a public company, then you can look at their published ROA as an indicator of the expected minimal hurdle rate for this acquisition. They are definitely making a long term commitment to the area.
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