Replies to This Discussion

Permalink Reply by Les Bamburg on October 30, 2008 at 18:01

Jim, many of the smaller companies would likely not have a gas marketing department but would instead sale to a 3rd party marketer at the point of delivery into the interstate pipeline. Even ExxonMobil has a very limited gas marketing depart.

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Permalink Reply by Les Bamburg on October 31, 2008 at 17:20

KB, you are likely to get a lower price if you take gas in kind. There are very few 3rd party marketers left in business and they deal primarily with large volumes from the Chesapeakes, XTOs, EOGs and EnCanas. Smaller volumes are generally viewed as a nuisance and the 3rd party marketer would likely charge large fees for all the work involved. It may be the same company the operator is selling to and the operator would probably get a higher price due to larger volumes. This was the same reason small landowners were aggregrating acreage to get higher offers.

Permalink Reply by The_Baron on October 30, 2008 at 10:41

Great link.

It clearly shows the regional difrences in gas prices. notice how the east is $0.50 or so more an mcf than the gulf region. This is a great way of showing the need for more interstate pipelines.

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Permalink Reply by Louzanne on October 30, 2008 at 10:28

Thanks GoshDarn....great post.
L.

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Permalink Reply by Les Bamburg on October 30, 2008 at 18:08

GD, you are correct that you can estimate wellhead prices from the NYMEX settlement price. If you plot real historical information It should provide a correlation and the the appropriate pricing differential versus NYMEX.

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Permalink Reply by BirdDawg, plain ole' idiot on October 30, 2008 at 15:31

I have always been told we (working intrest owners) got paid on the average of the monthly Henry Hub price. But then again, I have been told a lot of crap.

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Permalink Reply by Les Bamburg on October 30, 2008 at 18:12

BD, I think that is close to the truth. Because most gas is sold based on NYMEX settlement price (roughly the same as the montly Henry Hub cash price), the price for owners would be related to Henry Hub (NYMEX).

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Permalink Reply by Les Bamburg on October 31, 2008 at 4:49

KB, they would not want to tie the value directly to NYMEX or Henry Hub pricing because this would create basis risk. In reality the value is indirectly tied to NYMEX (Henry Hub) with some basis variability.

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Permalink Reply by Les Bamburg on October 31, 2008 at 8:43

KB, the WIO gas price is tied indirectly to NYMEX (Henry Hub). Let's say you are a producer delivering natural gas into the Centerpoint system from the Elm Grove Field. Attached is a graph which shows the historical basis differential between the Centerpoint Index price and the NYMEX contract. You can see it is NYMEX related but with some significant variations month to month. The average for the time period was $1.07/MMbtu. Granted this represents an average of all transactions on the Centerpoint system so individual gas sales would be different.

Attachments:

• Centerpoint Basis.jpg, 75 KB

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Permalink Reply by Les Bamburg on October 31, 2008 at 17:04

Jim, the unleased owner is likely to get a lower price if marketing gas separately and would be reponsible for nominating the gas volume to the downstream purchaser. This is the reason Louisiana regulations force the operator to market any carried owners' share of produced gas. This should mean he/she receives the same price as the operator.

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Permalink Reply by j garrett on December 8, 2009 at 17:34

Working Interest Owners are different from Royalty Owners. Working Interest Owners participate in the big part of the pie chart ( the 75% part if the royalty is 25%). But, they also have to pay for their percentage of the well costs.

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Permalink Reply by Les Bamburg on October 30, 2008 at 17:46

Tiger, looking at prices on a daily basis is of very little value because the majority of gas is sold on a monthly basis (first of the month) rather than a daily basis. In case you are interested the attached describes Platts pricing survey points and how they are calculated. Most natural gas bought and sold in the Eastern half of the US is priced with a diffential to the final settlement price of the NYMEX futures contract. For example I agree to sell 100 MMcfd of gas delivered into the Centerpoint Pipeline for the month of November at a price of NYMEX settlement less $0.55 per MMBtu. If the November NYMEX contract settles at $6.47 on the last day of trading I will be paid $5.92 per MMBtu.

Attachments:

• na_gas_methodology Sep 2008.pdf, 138 KB

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