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.

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Permalink Reply by adubu on August 4, 2010 at 15:06
we come a round back to the question how can we verify if we are paid correctly. Please all continue with the comments, questions and we can learn what is happening with sales and what the operators are doing that can help us to maybe know what to look for and do-------
Permalink Reply by JHH on August 4, 2010 at 15:11
i agree. something is going on... something the royalty owners need to know. many laws favor the operators... and without the operators... we wouldn't have exploration and new energy supplies. but fair is fair... and right is right. thanks for the discussions... i'll say it again... this web site has been very helpful. signing off... good night and good luck America. jhh
Permalink Reply by Love Horizontals on August 4, 2010 at 17:17
True - mineral owners need the Oil co's......but the oil co's need a place to drill and minerals to produce. It should be fair, but they have the lobby to handle the legislature and the financial influence on the courts.

The most leverage a Lessor has to work out the details of payment etc is BEFORE he signs the lease. Lessor's leverage evaporates once he signs the lease. Many Lessors get so caught up in the lease bonus and idea of getting a well drilled they miss the big...and longterm picture of the relationship with the oil co.......and they end up leaving a whole lot on the table. By the time they figure it out, it unfortunately is usually to late to renegotiate. The oil co's know it and take advantage of it everyday.
Permalink Reply by FXEF on August 4, 2010 at 15:30
adubu,

From what I have read and understand, everyone is at the mercy of the operator. If you have a honest operator, then you will be paid correctly. All the data (numbers) comes from them, so it's going be kinda hard to verify the info they give you.
Permalink Reply by Les Bamburg on August 5, 2010 at 2:10
FXEF, actually I believe there are shortcut methods to check that the royalty payment is generally valid.
Permalink Reply by JD on August 5, 2010 at 5:09
Les B,

What are the shortcut methods you speak of?

Thanks,
JD
Permalink Reply by Les Bamburg on August 5, 2010 at 5:35
JD, I would just suggest you take a few months of royalty statements and compare each month's "wellhead" price to the final NYMEX settlement price for that month. It should give some idea of the differential to NYMEX (ie 40 cents below NYMEX). For future months you can use this diffential to estimate what should be a reasonable wellhead price based on the final NYMEX settlement price. You should also be able to obtain the gas production volume from Sonris (or TRRC) as a check.

Also, once you calculate this differential you can ask the operator for information that may help explain how much is related to transportation costs versus other deductions.
Permalink Reply by Love Horizontals on August 4, 2010 at 17:01
Nothwithstanding anything you put in your lease to the contrary to protect you from standard industry practices...........the industry standard is "Prudent Operator". In other words, if doing something is standard practice by others in the industry.......its ok. :0)
Permalink Reply by adubu on August 5, 2010 at 0:35
love horizontals---so if it is standard practice to screw the individual royalty owners then it is OK---just like the federal gov. does to all people who work and pay their taxes without questions--however we can vote some out of office--but we are stuck with our "Prudent Operator" Lessee
Permalink Reply by Les Bamburg on August 5, 2010 at 2:11
Adubu, that is definitely not industry practice.
Permalink Reply by Kat Bloomfield on August 5, 2010 at 2:11
Love Horizontals: ain't that the truth! It happens in every dominating industry from finance to O&G. The "reasonableness" standard is as defined by the industry itself. Is that not the most moronic method ever?!
Permalink Reply by Love Horizontals on August 4, 2010 at 16:46
It is actually a whole lot more complicated and involves answers to a lot more questions. Also, Chesapeake is probably doing hedge and swap contracts too which adds to the mix of what they actualy "realize" from the sale of your gas and how it is being reported from an accounting standpoint.

It also is all highly specific to what YOUR lease says. Does your lease SAY wellhead? If yes, does your lease define wellhead for the purposes of your lease (or default to case law definition). If not, how is the point of sale defined in your lease? Does your lease prevent Chesapeake from selling to a related co or can they sell to whom ever they chose? And does your lease address the situation if Chesapeake sells to a related co at price received less than market (can be a big difference between price they receive for gas and market price - particularly to an affiliated party .

Real issue is the terms and language of your lease - it may allow Chesapeake the leeway to basically do whatever they want when they sell. If it does, then unfortunately most questions and answers would be an exercise in futility.

A good way to see WHAT Chesapeake is saying they are "realizing" from the sale of your gas is to look at their financial reports and see what they are telling the stockholders they are selling the gas for.

If you are in TX, go to the TAMU website and read Oil and Gas lease articles by Judon Fambrough. I believe he discusses wellhead definition issues in one of them.

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