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Permalink Reply by Ben Elmore on December 29, 2010 at 3:18

Les, can you explain how royalty owners can use this information in understanding deductions listed on their check stubs?  In other words, there can be deductions for a number of things such as transportation, compression, processing, etc.., and every company is a little different in the detail they provide identifying each deduction.  What deductions would these indices be relevant to for comparison purposes?

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Permalink Reply by Henry on December 29, 2010 at 3:29

Ben,

One problem that I'm seeing in responses to my survey is that the companies are very bad in itemizing deductions. 

 

At the worst is Chesapeake -- they do not even show the gross price or any deductions on their monthly statement.  They only show the net price paid to the mineral owner.

 

Some of the better ones show the gross price and list a few categories for deductions.  But sometimes the categories are vague.

 

 

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Permalink Reply by Ben Elmore on December 29, 2010 at 3:58

I've seen that complaint in other posts.  It sounds like CHK may argue it is complying with the LA check stub statute.  The LA requirements for check stubs are (LRS 31:212.31)::

(1)  Lease identification number, if any, or reference to appropriate agreement with identification of the well or unit from which production is attributed.  

(2)  Month and year of sales or purchases included in the payment.

(3)  Total barrels of crude oil or MCF of gas purchased.  

(4)  Owner's final realizable price per barrel or MCF.  

(5)  Total amount of severance and other production taxes, with the exception of windfall profit tax.  

(6)  Net value of total sales from the property after taxes are deducted.  

(7)  Interest owner's interest, expressed as a decimal fraction, in production from (1) above.  

(8)  Interest owner's share of the total value of sales prior to any tax deductions.  

(9)  Interest owner's share of the sales value less his share of the production and severance taxes, as applicable.  

 

Rather than bang their heads against the wall trying to get CHK and others to change their "set in stone" practices, I think the best way for royalty owners to determine on their own if they are not being treated fairly is by comparing prices and deducts with neighbors who are leased to a different company.  Again, they can ask their lessee for details on deductions and such, but in my experience, that typically proves to be more frustrating than productive.  That is why your check stub data you are gathering will be so valuable to those who participate. 

 

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Permalink Reply by Les Bamburg on December 29, 2010 at 3:57

Ben, these basis numbers just show the market price for natural gas in the area before deductions is ~ 10 to 20 cents/MMBtu below the NYMEX (Henry Hub) value.  So when the January NYMEX contract expires today, one can estimates the January gross sales gas price before deductions.  Then it becomes more clear the level of deductions being applied by the operator.

 

Example - The January contract expires at $4.10/MMBtu.  Estimated gross price of $3.95/MMBtu ($4.10 less 15 cents).  Assume Btu Factor of 1.0 gives gross price of $3.95/Mcf.

 

If royalty statements show actual gross price then this information can be used with the NYMEX expiration data to develop a specific basis for that well.    

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Permalink Reply by Ben Elmore on December 29, 2010 at 4:01

Very useful.

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Permalink Reply by Linda Blunt on December 29, 2010 at 4:29

Thank you very much Les, the information has cleared many questions that I have had over the past couple of months.

 

:) !!!!!

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