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Permalink Reply by Ben Elmore on July 22, 2011 at 7:47

Price at the wellhead is essentially a net price off of the NYMEX or some other index price.  In very simple terms, price at the wellhead accounts for various post-production costs (e.g., processing, treating, transportation, marketing) that are deducted from the NYMEX or some other index price that is the market downstream of the wellhead. 

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Permalink Reply by Ben Elmore on July 22, 2011 at 7:50

And you are paid on whatever price your lease says you will be paid on.  If you have the boilerplate "market value" or "amount-realized" royalty clauses, then yes, you are technically getting paid a net-back price at the wellhead.

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Permalink Reply by The_Baron on July 22, 2011 at 8:09

Price at the wellhead is not nessarilly tied to an index like the Nymex.

 

The Nymex price is what futures traders are paying for delivery at a later date. The "Wellhead price" is what the operator recives from the pipeline operator, or buyer downstream. Depending on your lease, you may have additional deductions.

 

Example. I drill some wells, build a gathering system and tie into a salesline owned by joe-bob. joe-bob will buy my gas, which will be less than the nymex set price, because he will sell the gas for delivery to someone else. Or worse, he will sell to another pipeline and give me even less money.

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Permalink Reply by Bobby Burton on July 22, 2011 at 9:27

Thanks for the replies.

 

If anybody is involved in a 50-50 deal between Shell and Encana, do you know how much typically below the wellhead rates have been from the NYMEX?

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Permalink Reply by Les Bamburg on July 22, 2011 at 15:29

Bobby, the daily NYMEX natural gas prices you see quoted have little or no connection to wellhead gas prices.  The final settlement price of the NYMEX contract will give a better indication of wellhead price once appropriate deductions are applied.  The final NYMEX contract settlement price occurs 3 business days before end of the previous month.

 

For example during June you would see daily quotes of the July NYMEX contract but the only valid value was the final settlement price of $4.357/MMBtu.  The other daily values really mean nothing for royalty owners. 

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Permalink Reply by VSC DeSoto South on July 23, 2011 at 10:08

I am familiar. The price is more closely aligned with Henry hub. Not to the penny and it depends on your lease terms.read your contract once you are familiar with it then call shell and encana and ask them they operate separately. They will both tell you what they are using to base the price on.if you don't like the answer ask to speak with am analyst. Note shell takes out severance tax and encana does not.nymex is for commodities traders it had nothing to do with wellhead.

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Permalink Reply by Les Bamburg on July 23, 2011 at 12:40

VSC, the majority of natural gas sold by producers in North Lousiana is priced against the NYMEX natural gas futures final settlement price.  Although the NYMEX futures contract is traded at the Henry Hub it is different than the Henry Hub cash prices which relate to gas physically bought and sold at that location.   

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