How can you verify that the operator is paying you correctly on your royalty----
The decimal interest is correct on division order. How can you obtain itemized statement showing all details of NG price the operator received and all deductions taken out or if royalty free clause in lease are you getting gross price minus only taxes. Is operator required to give you this information on your written request? Is email considered written request? Is this a normal recommendation royalty owners should due? I have heard royalty department has been know to "accidently" make errors in calculations.
Tags: How, can, correctly, is, on, operator, paying, royalty, that, the, More…
Views: 316
Replies to This Discussion
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Permalink Reply by Les Bamburg on -
LH, because the average price (before hedging) for a large operator would be a blend of gas from many different regions it would have little bearing to an individual lease location. Also, this is generally reported by quarter rather than month.
A better gauge would be to check the NYMEX final settlement price and develop a "differential" based on actual information.
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Permalink Reply by Les Bamburg on
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JD, no gas from NW Louisiana/East Texas flows to the Henry Hub. Natural gas can be sold at various points along the flow path but generally it would occur at some downstream interconnect point to the interstate pipeline (ie Texas Eastern, Gulf South, Tennessee, etc). This downstream price would be netted for any cost of transportation to get from the wellhead to the interconnect point.
Example - Chesapeake sells gas into Texas Eastern in NELA at $4.90 per MMBtu but incurs $0.30 in transport cost. The wellhead netback price would be $4.60 per MMBtu.
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Permalink Reply by Love Horizontals on
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Look to your lease. They tehchnically would only have to do what you required them to do in your lease. These are things all things a good board certified O&G attorney would have put in the lease he wrote for you. Also the right to audit their financial records, etc. If the oil co wrote your lease for you it is unlikely they put anything in the lease requiring themselves to tell or show you much of anything.
Another important factor is the point a sale. For example, in TX the Oil Co's have been very sucessful in getting the courts to define price at the wellhead in their favor. Specific words and/or phrases used in the sale and royalty clauses are critical due to the courts specific interpretation of the meaning of the words over the years that have changed them from being favorable to the Lessor to broadening what the Oil co can do. Even the royalty free of costs language has been interpreted favorably to the Oil co's. Without having specific other language in the lease, it is my understanding there are things they still can deduct if they elect.
More importantly (and sad) is the reality that even when the Oil Co specifically agrees to do or not to do certain things in a lease and then breach the lease, they know statisticaly it is rare for a royalty owner take them to court over it. It appears that an oil co's worse case scenario is even in the unlikely chance they get challenged by a royalty owner on anything, all they have to do is pay what they owed in the first place + interest. It doesnt appear to be much motivation for them to follow any lease provision fully, except for drilling the first well before the primary term expires because that particular provision will terminate the lease (unless the royalty owner "gave" them an option to extend for another term without drilling).
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Permalink Reply by Gary Hogan on
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Did anyone really think that these companies where going to have a system that pays people fairly for what they really earned. Like the Industry itself there is no one really looking after the fox in the hen house. The formulations , the free market, daily selling prices , pipeline fees and charge backs can be so complex and purposely set up that way that individual leasors can never know if they are being cheated. AN example is the fact that Chesapeake and DFW airport in Texas have an ongoing lawsuit over the first months of royalties estimated to be under payed by tens of millions. DFW had full time lawyers and accountants to find out their belief that they where cheated. Who does the individual or even large group leasers have ? Good luck to all you will probably have to take what they give you and know you probably are being cheated. In Texas the only true verification is the Railroad commission that a leaseholder can verify the amount of gas declaired by the operator as to production from that well during the pay out period, Then of course there is pipeline loss to market, where that goes you do not want to contemplate , then one needs to do the complex math of their lease, share, % royalty, charge backs etc etc. Again good luck!
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Permalink Reply by Les Bamburg on
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Gary, true - the industry is complex but it was not purposefully set up that way. Having worked in the "biz" for 30 years I am not aware of a single instance of an operator trying to cheat a mineral owner. But of course it is easy to make such statements even if someone lacks a factual basis.
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Permalink Reply by Kat Bloomfield on
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"I see nothing; I know nothing; I say nothing"
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Nice, Les B; really, freakin' nice. Obviously, the industry hates dissension and will do anything it can; including using causticity to chase it away.
Query: does being in the pipeline side of the industry necessarily form a knowledge base from which the conclusion you make is true? Does a tree falling in the forest make no noise?
On that note, the uploaded article may be of interest to those wanting some industry "insight" into pricing, hedging, etc., as well as cost deducts from royalties. - Attachments:
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and to quote the "industry," "We may raise more questions than answers and we advocate more of a case by case analysis than a bright line rule. But we believe that this is a fertile area of the law that deserves discussion and debate." But, I guess the industry would rather debate itself. . . .
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Permalink Reply by Les Bamburg on
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Kat, typically I do not make such responses but you sent me that direction with your post.
I have never hated dissension and actually am a proponent of asking questions and obtaining as much information as possible. One area in particular is the allowable deductions for the purpose of calculating royalty values. Although the provision may be fuzzy I am of the opinion that allowable deductions should be limited to transportation costs to the market point and exclude any operating and treating costs.
By the way, pipeline industry experience would be of limited value regarding this topic.
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Gotcha. I meant nothing but humor. That said, yours is a voice most listened to on this site. Your comment suggested nothing irregular ever occurs between operators and mineral owners on royalty payments and that simply is not a true statement.
Peace
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