Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on June 3, 2025 at 6:43

I can't, Steve.  That's a question for an experienced O&G attorney.  If you need a referral, let me know.

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Permalink Reply by Quattro on June 3, 2025 at 12:53

The ole Pencil whipping

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Permalink Reply by Skip Peel - Mineral Consultant on June 4, 2025 at 2:52

A working interest in a well owns leases that have been force pooled into a drilling unit operated by an O&G company.  They receive their proportional share of production either by receiving and marketing that volume or by allowing the well operator to do it for them.  If the well operator does that they receive monthly revenue statements and get bills for their proportional share of well operating costs.  Those are Joint Interest Bills (JIB).

Some working interest owners market their share of the gas produced from wells they own an interest in and pay their royalty obligations.  Other working owners simply allow the well operator to market their share of the gas and pay the working interest owner who then pays royalty to the lessors under their leases.  I have one client that does that. Some working interest owners are set up to pay royalty and some are not and depend on the operator to do that for them.

The answer provided by Comstock seems contradictory in stating that the working interest is marketing their share of the gas stream but Comstock is paying their portion of the royalty that burdens the working interest share.  Considering the large discrepancy in royalty paid, either Comstock should be paying the total owed or the working interest owner should be making an addition payment to the mineral lessor for the gas they market.  Using the term "rebalanced" does not provide clarity for the mineral lessor.  Something that O&G companies like to do in hopes that mineral lessors will give up trying to understand why they have been shorted payment and simply go away and leave them alone.  Rebalancing is an industry term that is unclear to those not in the industry. This is typical industry standard operating procedures that make my blood boil.

Many operators used to send royalty statements that contained post production deductions that had a line item cost and a numerical code.  Royalty recipients were not supplied with the a key for the code that revealed what it was for.  Another example of keeping mineral lessors in the dark and hoping they just shrugged their shoulders and accepted whatever they were paid. Litigation resulted in courts ruling that companies had to provide clear explanations for what they were charging.  So now instead of a dollar figure and a code like 1039, royalty revenue statements have a dollar figure following by "Transportation" or "Treating" or "Salt Water Disposal".  Those are fairly straight forward if not completely clear to non industry individuals.  Working interest owners get JIBs with many other itemized charge backs for everything from coffee for the break room to paper for the copy machine to cutting the grass.  The pencil whipping is amazingly extensive.

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Permalink Reply by w.r. frank on June 4, 2025 at 3:24

Any rebalancing between the WI owners should not impact a RI. EXP internal accounting used to say take a in kind by a a non-op WI shrinks the unit. In this case, the RI payment decimal (for EXP accounting) should increase. These is pure BS.

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Permalink Reply by Skip Peel - Mineral Consultant on June 4, 2025 at 3:38

I've never heard of in kind non-ops shrinking the unit.  If both the operator and working interest owner are paying their proportional share of production, the two separate eight digit decimal fractions should add up to the same as that appearing on your division order.

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Permalink Reply by Jesse Joyner on June 4, 2025 at 6:25

I could be totally wrong in regards to what's occurring in this so-called "pencil whipping." Some of the opinions posted could be exactly correct, and my feedback could be totally wrong. Yet, having stated that, I do think there is a possibility that Comstock is "transitioning" the royalty per new circumstances, and on a good day they may eventually make a correction/adjustment and the "volumes" will align to reality. For land/mineral owners who've dealt with a variety of operators over the years, such gyrations sometimes occur and eventually (that's the rub) -- and eventually such rebalancing finds a reality stasis and the mineral owner is made whole. One can only hope sans a good O&G lawyer. 

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Permalink Reply by Steve P on June 4, 2025 at 6:59

I've pushed back on Comstock, and they have referred me to accounting for more explanation.

My June check I received this week is back to normal.

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Permalink Reply by Skip Peel - Mineral Consultant on June 4, 2025 at 7:01

When you speak with accounting it should be someone responsible for your wells.  If you can, get their name and email address.  In the future go directly to them and keep your emails for proof of your contacts.

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Permalink Reply by Ryan Howrish on June 4, 2025 at 8:36

Unfortunately, it's not uncommon for allocation issues to arise when a non-operating working interest owner markets their own volumes.  I am not sure how long the problem has been occurring.  You should be able to tell based on the number of revisions on your royalty statement that was 20% of what it usually is. Most likely, someone at Comstock made an error in the allocation for a period of time.  Once the error was discovered, the operator was obligated to correct it. The total gross gas volume from the well/unit is likely unchanged, and you can confirm this by reviewing the reported production in SONRIS.  You can calculate your monthly volume and revenue using the unit size, acreage, royalty rate, and gross volume from the unit well to determine if there were any changes to your allocated volumes during the rebalanced months. I have worked through similar issues with several operators in the Haynesville.

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Permalink Reply by JAMES SMITH on June 4, 2025 at 13:32

Same thing happen to me with SWN my April check went down $1000 and I didn’t even get one in May. They told me something about WI but all my acres are leased. I guess they are looking into it.

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Permalink Reply by Skip Peel - Mineral Consultant on June 6, 2025 at 2:08

James, in your drilling unit some of the leases may be owned by SWN, now Expand Energy, and some leases are owned by other companies or individuals, "lessees". Ryan can correct me or add detail but I think what may be happening in your situation and in Steve P's is that a non-operating working interest owner (lessee) may choose to take their portion of the produced gas in kind and market it themselves.  Or the opposite where a working interest owner has been marketing their gas and then asks the well operator to start marketing it for them.

When an operator applies for a "compulsory unit" and it is approved, the operator can force all the mineral rights into the unit including leases held by other companies or individuals (lessees) and the tracts of unleased mineral owners.  In Louisiana this is called forced pooling.  In other states a similar regulation may be called forced integration or compulsory integration.  In Texas a tract that is unleased may be excluded from well production and not receive any well revenue unlike Louisiana.  A horizontal lateral may penetrate that unleased tract but the horizontal lateral would not be perforated in the portion of the wellbore.  There is a good bit of variation in state oil and gas regulations.

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Permalink Reply by JAMES SMITH on June 6, 2025 at 12:38

OK thanks Skip

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