How can we check royalty payment checks. How are they calculated

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It's not easy, Jackie.  But it should be easier than it is.  My response is based on an assumption that we are discussing unitized Haynesvile shale well(s). 

The first question regarding the accuracy of royalty payments is, does the decimal fraction on your royalty statement accurately reflect your proper proportional share of production?  The math is pretty straight forward but you have to have the correct inputs to do the math.  If you have a copy of your Division Order (you received one before you began to receive monthly payments, or your predecessor in title did), then you can divide your acres by the number of acres in the unit (that's supposed to be on the Division Order but in my experience isn't always included) then multiply by the royalty fraction in your lease.  Here is a simplified example.

You own 10 acres in a 640 acre unit and you have a quarter royalty.  10/640 = 0.015625 X 0.25 = 0.00390625.

Now be aware that the size of your tract may or may not be the size you think it is.  Many deeds and other conveyance instruments have legal descriptions copied down through the decades from old surveys.  It is common for there to be discrepancies.  In order to calculate what you are owed, the company operating the unit well(s) is supposed to perform an "on the ground" survey of the unit boundary and all of the individual tracts that make up the unit.  This isn't always the case.  There are a lot of inaccurate surveys.  There is a long standing problem with the fact that many unit surveys are missing from the state database where a mineral owner should be able to access a copy.  You can look in the database and hopefully yours will be one that is available.  Across all the Haynesville Shale units in north Louisiana there are about 600 that are delinquent and unavailable.  If you can find yours and the acreage of your tract is different than what you think it is, you can pay for your own survey to figure out which is correct.  Yeah, not something most mineral owners wish to pay for but your only choice if you don't wan to simply accept the acreage assigned by the unit operator.

Although royalty statements vary somewhat in format, the all should contain: the well name(s), the production date(s),the gross volume of production for that period in mcf (thousand cubic feet), the price per mcf, the gross amount in dollars , adjustments (we generally call them post production deductions which can include gathering, transportation, treating, and severance taxes) and a net dollar amount.  Those are the Gross Amounts.  Then come your Owner Amounts which are basically the same values adjust for your decimal interest.

How do you know if the volume reported for your well is correct?  If you are a student of GHS you may know how to look up the well file for your well or wells and get the monthly volume reported to the state.  It may or may not match what is listed on your statement but it should be relatively close.  The state requires that production volume be reported using standards for pressure and other required measures while your operator may use slightly different values for internal bookkeeping including paying your royalty.  Different states have different reporting standards.  For example Chesapeake uses the Oklahoma standard (that is where their corporate headquarters is located) which is different from the Louisiana standard.

Okay, where to start?  Look in the SONRIS database to see if your unit survey is on file.  Hopefully your understanding of the correct tract acreage is the same or very close to what is on the survey and the math is correct on your decimal interest.  I wouldn't worry about the monthly volume since the state has strict requirements for reporting and the ability to punish operators who do not report as required.  Then the question is one of post production deductions and any language in your lease which pertains to the operator's ability to charge you.

Obviously this is a simple description but it points out a number of significant hurdles for mineral lessors when trying to confirm that they are being paid properly.  If this was simple, I wouldn't have a basis for my business.

Thank you Skip. I’ll check it out when I receive the division order.

You're welcome, Jackie.  A unit survey is supposed to be filed with the state within 90 days of first production.  If yours is a new unit, note the first day of production and then wait a reasonable time, say 100 days, and then check for the unit survey in the database.  Let me know if you need any assistance.  If the survey is not on file I can supply you with a name and contact information for you to contact the state and request that they notice the operating company that they are delinquent with submitting the survey.  The state office is under staffed and short resources so more than ever the old saying that the squeaky wheel gets the grease applies here.

New unit went on line Sept 1,2018..100 days will be coming up soon    thank you Skip

This is another example of the value of GHS.  Where else would a minerals owner go to get informed opinions about their property?  GHS has a diverse membership who really try to help each other. That is unique and has been true from the beginning of the Haynesville.

Thanks Keith! Have a good Christmas!!

HANG (Hopeful About Natural Gas)


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