Replies to This Discussion

Permalink Reply by LP on September 10, 2010 at 4:02

Katie,
Apparently you are the Chesapeake representative. Thank you for being a member of GoHaynevilleShale and for participating in these discussions. Your direct input will be very helpful.
To my fellow GHS members....please treat Katie with the respect and courtesy that you would want in reply. She is the public voice for Chesapeake and can answer our questions.
She deserves our courtesy and not angry rants. She has a job to do and draws a paycheck just like the rest of us so please request information with a civil tone.

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Permalink Reply by The_Baron on September 10, 2010 at 5:02

I appreciate that Katie has chosen to reply, but lets be honest. Her statements are the same regurgitated useless info that CHK provides. Chesapeake Energy Marketing allows CHk to sell its gas at a lower price at the wellhead while allowing CHK to hedge the gas themselves.

It is clear that it is the mineral owner who gets the shaft. CHk knows this and this is why they hire nice people, like Katie, to sugarcoat these bitter pills to the mineral owners.

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Permalink Reply by LP on September 10, 2010 at 5:26

Let's try an experiment.
Let's ask specific questions to Katie with the expectation that we will receive direct, forthright and honest answers to the specific questions.
Katie,
My question:
My lease Exhibit A
Royalties shall not be subject to any deduction of post-production costs, including transportation, dehydration, compression, treating and marketing costs. The sole exception to this are treating costs which increase proceeds from the sale of hydrocarbons as, for example, the cost to extract suspended liquids from natural gas for separate sale.

Another landowner's lease in the same unit does not have the exemption of post-production costs provision.
The other landowner and I receive the same price per mcf on our royalty check stub.
Are post-production costs being deducted from my royalties or...is the other landowner not having post-production costs deducted?
I have other questions but please reply to this one question first.
Thank you,
LP

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Permalink Reply by adubu on September 10, 2010 at 5:37

LP---Great question I've been wanting answer and difficult to receive answer. Other operator's also sell gas to pipeline owners if they can have that option ( rather than selling downsteam then deducting pipeline cost)at well site meter at lower price than received downstream since downstream price include pipeline transport cost plus pipeline's profit plus cost of gas paid operator at wellhead therefore operator screw royalty free lessor since operator doesnot pay for transportion cost, pipeline, etc and pay royalty owner "Gross Price" Hope Katie from CHK will answer

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Permalink Reply by grasshopper on September 10, 2010 at 6:51

You know, Boron, that I think that the State of Louisiana and the Federal Government should look into this. The less we get for our gas, the less we pay in income tax. It could be,though, that they get more from Chesapeake in taxes the way it's done now. Who knows?

grasshopper

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Permalink Reply by The_Baron on September 10, 2010 at 8:17

Unfortunatly, The Feds and State probally don't even have a clue....

Interesting though, in LA severance taxes on oil are a %, while gas is a fixed rate (varies each year, and by well type).

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Permalink Reply by Henry on September 11, 2010 at 23:45

Katie,
I am still trying to understand your explanation, so I'll ask some questions... You say, "CEMI pays Chesapeake the weighted average re-sale price..." Can you elaborate here?

1. To whom does CEMI sell the gas?
2. How is the price that CEMI sells the gas determined?
3. What does "weighted average" mean?

Then you go on to say, "gas contracts are more individual to a well or lease connection based on field condition." What does this mean? I don't understand this sentence.

Any insight you can provide to me, and the others who are interested in this topic, would be really helpful. Again, we thank you for stepping in and helping us all.

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Permalink Reply by Katie McCullin on September 13, 2010 at 10:03

Hey Henry!

Sorry for the delay; I wanted to make sure I provided you and everyone else with some really thorough information to your follow-up questions. I just took your questions, and answered Q&A style. Hope it's easy to follow! Let me know if you have any other questions!

1. To whom does CEMI sell the gas? Chesapeake Energy Marketing Inc., (CEMI) is a wholly-owned subsidiary of Chesapeake Energy Corporation. CEMI provides natural gas marketing services including commodity price structuring, contract administration and nomination services for Chesapeake and its partners. CEMI purchases natural gas from Chesapeake Operating, Inc. and sells downstream at multiple sales points throughout the country based on contractual and spot market conditions. Examples of multiple sales points include interstate and/or intrastate pipelines, local gas distribution companies and large volume natural gas users. Before natural gas is delivered to a sales point, post-production processes take place including gathering produced natural gas from the wellhead, compressing, processing and treating the gathered gas. All of these post-production processes are considered costs for which royalty owners are charged only their proportionate part required to deliver natural gas to these sales points. Royalty payments are based on the exact amount that CEMI receives for natural gas sold, less the proportionate share of post-production costs.
2. How is the price that CEMI sells the gas determined? The price of natural gas is set by market forces, primarily supply and demand. Those market forces provide information where informed buyers and sellers agree on the price of natural gas on a constantly changing basis. Natural gas is considered a commodity and commodity markets are inherently volatile, meaning the price of commodities can change often, and at times drastically. Pricing for natural gas is driven by the economy, the weather and other pertinent factors making it one of the most volatile commodities on the market.
Natural gas is priced and traded at different locations throughout the country. These locations, referred to as 'market hubs', exist across the country and are located at the intersection of major pipeline systems. There are over 30 major market hubs in the U.S. and prices fluctuate at each hub, depending on the supply and demand for natural gas at that particular point.
3. What does "Weighted Average Sales Price" mean? The Weighted Average Sales Price (WASP) of natural gas is the average price that CEMI pays Chesapeake Operating, Inc. during a given time period, usually a month. CEMI aggregates natural gas from multiple wells into a “pool.” The volume of natural gas aggregated in this pool is then divided into sales to many different sales points. The WASP is calculated by averaging the price received from individual sales out of this pool across the entire volume contained in the pool. This WASP is then applied to all of the wells whose production contributed to the sales pool. Chesapeake royalty owners are typically paid based on this weighted average amount in accordance with the terms of their lease which is an individual contract between the mineral owner (lessor) and the operating company (lessee.)
4. Please elaborate on “royalty payments are very specific to an individual well and lease.” The British thermal unit (Btu) value of natural gas is different from each producing well. Prices paid for natural gas may vary depending on the produced natural gas being considered higher heating value (HHV) or lower heating value (LHV), which is determined by the Btu value. Additionally, natural gas from a particular well may require more or less post-production processing and require different routes to sales points (discussed above) which will certainly impact wellhead prices.
An individual lease is a contract that is negotiated between a lessor and lessee. The lease terms may vary to meet the individual needs of a mineral owner so it would be inappropriate to try and answer a specific question about an individual lease. We encourage each Chesapeake mineral owner with questions concerning their royalty payments to contact our Contact Center Hotline. Our Contact Center is available to provide first-rate customer service for our mineral/royalty owners and is staffed with employees dedicated to answering your questions. The Chesapeake Contact Center Hotline is open Monday through Friday from 8 a.m. to 5 p.m. Central Time. You can reach us at 1-877-CHK-1GAS.

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Permalink Reply by The_Baron on September 13, 2010 at 10:28

I need Katie's job.....

I would love to just get paid to regurgitate, cut and paste the same old stuff every day.

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Permalink Reply by adubu on September 13, 2010 at 10:36

Katie---for those with royalty free clause in their lease --they should not receive any deduction for the above cost of preparation of gas for sale as you stated plus where and how is the pipeline transportation cost calculated and deducted from the sale WASP price. Is that cost then added back to price these royalty owner receive? See LP exhibit A above question posted 10 sept--thank you a reply

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Permalink Reply by JD on September 13, 2010 at 11:19

Katie,

Folks that follow GHS have a lot of respect for LesB who comes from your side of the business. Here is a comment he provided several pages back in this discussion.

By the way, a bigger company should get better prices - not worse.

CHK appears to be the biggest of all the operators in the Haynesville Shale, yet Henry's data would indicate CHK produces the lowest return for the royalty owners. Can you give us some rational for why that would be?

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Permalink Reply by Henry on September 13, 2010 at 11:43

JD,
I'll step in with one answer here... It turns out that most of the landowners with Chesapeake leases who reported data do not have cost-free royalties. And for one of the landowners who did have cost-free royalties, it appears Chesapeake made a mistake on what they paid, and are correcting it.

One of my respondents incorrectly told me she had cost-free royalties, and we have come to find out she did not. So I am correcting that.

And a couple of people have not yet told me whether or not they have cost-free royalties, so we don't know.

So.... what I really need, if we are going to answer your question, are people who leased to Chesapeake, who have cost-free royalties, to report. Find me some, and we can begin to understand this better.

I am going to re-post my data tonight, and will pull out the working interest owners onto a third page, so they don't confuse the rest of the numbers.

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