Gas Price from different company in a single well
A well was recently permitted in a section in which I own mineral rights. It will be my first Haynesville well. I have read in the past where there has been great disparity in the price of gas reported on the royalty check by different production companies according to members of this fine community.
Now, I understand that there are different production costs, transportation costs, etc which are assigned to the royalty owners and these costs are specific to each well. I also understand that one lease may specify which price to use for royalty calculation and someone else's lease may specify something different.
My question is say the unit is shared by several companies. CHK 60%, HK 20%, XTO 10% and ECA 10% (illustrative purposes only). The gas price as reported on the royalty check (assuming the same lease) should be the same from each of the companies. Is this correct? Or, can it vary? CHK @ 2.9, HK @ 3.10, . . . all from the same well.
My lease is with a smaller operator so I am curious how the gas price will be determined, if there is a deduction from the primary operator, etc.
Now, I understand that there are different production costs, transportation costs, etc which are assigned to the royalty owners and these costs are specific to each well. I also understand that one lease may specify which price to use for royalty calculation and someone else's lease may specify something different.
My question is say the unit is shared by several companies. CHK 60%, HK 20%, XTO 10% and ECA 10% (illustrative purposes only). The gas price as reported on the royalty check (assuming the same lease) should be the same from each of the companies. Is this correct? Or, can it vary? CHK @ 2.9, HK @ 3.10, . . . all from the same well.
My lease is with a smaller operator so I am curious how the gas price will be determined, if there is a deduction from the primary operator, etc.
Views: 13
Replies to This Discussion
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Permalink Reply by Les Bamburg on -
Phaco, typically each company takes and markets their share of any gas produced so each could have a different gas sales price.
If that is the case, your royalty payment will be based on your lessee's sales price. If your lessee allows the operator to sale gas on his behalf, there could be some type of marketing fee.
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Permalink Reply by phaco on
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Doesn't that lead to the potential for an O&G co. to sale the gas to it's own transportation company or to a friendly reseller to artificially lower the royalty payment to the mineral owner? When you see the variability between the gas prices, one at least has to question whether or not such shady tactics are taking place.
It would seem to me that the O&G companies have some fiduciary responsibility to maximize the revenue since the mineral owner is unable to participate in the process. Otherwise, O&G can rob the MO blind.
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Permalink Reply by Les Bamburg on
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Phaco, interstate gas pipelines are not allowed to buy and sell natural gas. Selling gas to a 3rd party marketer at an artifically low price would hurt the producing company. There is no evidence of "shady" tactics taking place as the royalty is based on the same gas sales price received by the producer.
The biggest issue is the category of costs that can be deducted from the sales price in calculating the royalty value. That is the reason it is critical for royalty owners to become familiar with what costs are allowable under their particular lease agreement.
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