Replies to This Discussion

Permalink Reply by Henry on February 21, 2012 at 8:45

Diane,

I haven't seen your statement, so take this with a grain of salt.  But it may be that the percentage deduction went way up because the price of gas went way down.  If HK is paying a fixed price, per mmcfe, for transportation, treatment, and gathering, then the percentage that is paid, will indeed rise, simply due to the fact that gas now goes for $2.50, rather than $4.00

You should compare the absolute cost of these deductions, rather than the percentage, and see if that went up.

• ▶ Reply

Permalink Reply by w.r. frank on February 21, 2012 at 14:32

Forget %, the cost/mcf escalated when HK sold the remaining 50% of its gathering, treating, transportation system to Kinder Morgan. Now let's see, increase fee/mcf--get higher sales price, screw royalty owners who don't have a "cost free" addendum.

Or in the case of CHK, screw them even if they have a "cost free" royalty by selling to a dummy wholly owned subsidary at a discount to reflect the "post-production" costs CHK has contracted not to deduct.  In other words, do indirectly through a wholly owned sub what you are contractually obligated not to do.

Get ready CHK! Magnolia Point (Federal District Court in Shreveport) is just the first of many cases you are going to lose.

• ▶ Reply

Permalink Reply by Henry on February 21, 2012 at 14:35

Gotta go look this case up on Pacer.  I cannot wait to watch!

• ▶ Reply

Permalink Reply by Henry on February 21, 2012 at 14:51

Well, I stink at finding things on Pacer.  Can someone upload the pleading from this case?

• ▶ Reply

Permalink Reply by Roy Austin Smith on March 2, 2012 at 11:05

Amen to that

• ▶ Reply

Permalink Reply by Hopeful About Natural Gas on February 21, 2012 at 18:20

I am leased with Petrohawk, but the well operated by CHK.  My expenses are over 23% and have skyrocketed the last several checks.

.

I can see Henry's point, and I will have to go back and double check the figures in my earlier checks. If the expenses were "fixed" in some way then the percentage would rise as the price of gas fell.  However, I can't figure out what these expenses are for!  Does anyone have a Rosetta Stone key to the CHK & HK's expense codes???

.

It's possible that when the price of gas fell they started scrambling for ways to raise money and raising the expenses would be a "reasonable" way to do it. I don't have a cost free clause and I am fine with  paying "reasonable" expenses. But, I am struggling to understand what "reasonable expenses" are.

.

What is a "reasonable" percentage of expenses?  and, does anyone have a Rosetta Stone to the codes they use for expenses???

• ▶ Reply

Permalink Reply by GoshDarn on February 21, 2012 at 20:02

HANG:

Before the HA came a callin', we were having about 6% deducted from our monthly royalty checks for the NG vertical wells.  And this percentage included sev. tax.

So that 6%, to me, seemed somewhat "reasonable" since we had old hbp leases, which didn't have "free royalty" (no deductions) clauses.

Then, once the HA super wells were drilled, the crud hit the fan, so to speak -- and our deductions vis-a-vis a number of operators began creeping up.  On one operator, that 6% climbed to about 12% to 15% (over a number of years).  When contacted, the operator used the excuse that the % increase was due to a new pipeline contract that they had entered into per having to use such for the HA takeaway.

Then, like Diane has stated, with HK -- the crud really, really hit the fan when the deductions eventually topped 23% to 26%.

Hey, there oughta be a law.

Also, many royalty owners might not even be watching their monthly royalty statements and running the numbers on such deductions.  Sadly, they may not realize that these monthly percentages really do add up over time -- although for one month they may not seem excessive -- but the big cheat is that such pecking %'s go on and on in perpetuity.  Like highway robbery.  Then such deductions really do add up, big-time.

Yep, there oughta be a law.

And folks need to take the time to look at their monthly statements or look at their check stubs -- and call and complain.  Don't just roll over and let the creative-accounting types run you over. 

And to compare apples to apples -- our last "good" lease with a "free royalty" clause only has about 4.9% for La. sev tax being deducted out . . . with zero deducts for CNV, GTH, TRN, or TRT.

• ▶ Reply

Permalink Reply by Dion Warr, CPL on February 22, 2012 at 10:12

GD:

Keep in mind in many of these fields entirely new infrastructure had to be built to take on the gas flows from these wells.  Most of the prior production (I am sure there are any number of individual exceptions) may have come on flowing hard and fast but in a very short period of time was put on compressor service as flowing pressures dipped below 700 - 900 psi.

 

Of course, it begs the question, "We had to pay for the compressor(s), didn't we?"  The answer of course is yes - but generally only once each time a compressor was brought on line, with any additional ongoing cost for operations and maintenance.  Many field produced for decades on a more "low and slow" type of operation and build out.

 

Haynesville production volumes do not allow for this.  Because of the volumes per well, pressure gradients from the wellhead to the gathering lines and the processing facilities, and the sheer number of wells that had to be brought into production at once in the rush to HBP, significant production, processing, and takeaway capacity had to be constructed and put into place in a very short period of time.  That capital cost is defrayed by the treaters, transporters and purchasers either in their allowable deductions or by third parties who accept, transport and purchase the products that are not directly affiliated with the lessee in the form of compensation per unit volume in the field.

 

Just estimating from the armchair, the takeaway volumes from the fields which are now part of the Haynesville fairway have been increased by a factor of 3 to 5 times what they were (in some localities, perhaps even substantially more so).  The play has gone from 0 to about 6 - 6.5 bcf/d since 2008.  The amount of sunk costs in infrastructure to accept that much volume and deliver it on-spec without choking must be paid for by someone.

• ▶ Reply

Permalink Reply by Spring Branch,mineral owner on February 22, 2012 at 10:40

Dion, if we assume: 1)the charges for gathering , compression, etc are right and proper and  2)that the Royalty Owners are paying for a very substantial part of the costs for that gathering, compression, etc........Why is it when the Operators sell their midstream assets at a very large profit, ( that we the royalty owners helped pay for and they are all doing it) that we, the royalty owners receive no share of the sale proceeds?  I help you pay for it.....you sell it....I get nothing!

• ▶ Reply

Permalink Reply by DrWAVeSport Cd1 on March 1, 2012 at 5:39

Yeah..."The amount of sunk costs in infrastructure...must be paid for by SOMEONE."

... The O&G PRODUCER... Who OWNS 75% of the PROCEEDS...And, Gets ALL the DEDUCTS...,

e.g., EB...Interest, Taxes, Depreciation, & Amortization...

Maybe the RO who is getting Coldcocked over the back of the "Wellhead," ought to be able to do the same "Accounting Rate of Return"  deduct hocus pocus magic the O&G Shale Producers perform on their tax return/balance sheets/presentations...RO Checks!

Pooooor things just can't make a 3 to1 deal work...   Boooo Hoooo Hoooo They Go...

Right Straight To The BANK!  Depositing and Debiting and Loaning Themselves Billions....all the Way Home...  X's the next 20 to 30 to 40 years...

No sympathy here.  Some of these O&G Players are breaking the backs of their ROs.  Just because they can...  

To Bad forensic audits aren't performed more often on a few O&G books. 

IMHO.

DrWAVeSport Cd1 3/1/2012

 

• ▶ Reply

Permalink Reply by Henry on February 22, 2012 at 0:39

HANG and Diane,

I don't know if HK's statements allow you to see all the deductions or not.  But if they do, you can divide the total amount of the deductions by the total production for any given month, and that should give you the cost of the deductions on a "per mcfe" basis.  Once you do that for a few months, you can see if it is a constant cost per mcfe, or whether (as GoshDarn and w.r.frank are saying) the cost per mcfe is rising. 

Based on the data people send me for my gas price survey, the deductions tend to run anywhere from $0.35 to $0.75 per mcfe, although I've occasionally seen it as high as $1.00/mcfe. 

• ▶ Reply

Permalink Reply by GoshDarn on February 22, 2012 at 1:22

Okay, Henry.  Now I understand what you mean by "fixed fee."  I can comprehend the logic driving such incremental increases via that type of pricing structure.  Wish the operator had explained it to me that way when I first had checked into it.

So, when I have time, I'll try to dissect some of my statements and see if I can nail down how the cards fall on the increasing percentages.

Thanks, Henry.

• ▶ Reply

• ‹ Previous
• 1
• 2
• 3
• 4
• Next ›
• Page