Can you tell me where the price we are paid comes from?  The price shown on the statement seems to be lower than the market. I know it is from two months past.

David E.

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There is no source for the price of natural gas from a specific location.  Pricing is based on regional "hubs", the Henry Hub, located in Erath, LA,  being the most famous although a significant volume of Haynesville gas goes through the Perryville Hub in NE LA.  Natural gas contracts are based off of a monthly hub price but also include a discount or premium to the hub price.  More often a discount than a premium in times of depressed gas prices.  Your operator reports the monthly gross price per mcf on your roylaty statement.  It is, more often than not, lower than the regional hub prices.

You also need to consider any deductions for that product (e.g. marketing fees, gathering fees, compression, processing plant, etc.). If you don't have a solid "cost free" lease, these deductions will all negatively impact your final royalty payment number.

These deductions are taken after the "value" of the gas is calculated using whatever the price metric is.

Just like tax deductions.

Here is a web site that might help.  I track this to see if prices are going up or down and I only worry about the monthly totals.  You can also change the view to daily, weekly, monthly, or annual.  I don't work in the industry so I have my own assumption that it is kind of like filling up your car.  Gasoline prices change daily.  So I assume that the price the operator gets would depend on the day that the transaction takes place.

Yes I have noticed that without fail some operators are always 0.10 below the monthly average, but some actually come in on the high side.

Thanks for posting, Greg.  As I understand it, very little natural gas is sold on the spot price.  The monthly "settlement" price which is published a few days prior to the end of the month is the "basis" price for physical gas sales.  There is a discount or premium based on that price as to the actual sales price.  If an end user runs low or out of their monthly purchase contract late in the month, they may buy additional supply at the spot price to get them to the next monthly contract.  Futures prices of course are used for "paper trades" by investors/speculators.  The IEA crunches a lot of data and aggregation that I find of interest is the variance in spot prices at the different hubs.


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