Replies to This Discussion

Permalink Reply by Parkdota on January 7, 2010 at 14:04

Is the Henry Hub spot price the price royalty owners should follow most when trying to estimate potential royalties?

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Permalink Reply by Bob on January 7, 2010 at 17:09

My experience so far is the royalty price is close to $1.00 under what the monthly average of the spot price. I'm assuming the $1.00 is a pipeline fee. Now this is only for 5 months so I'm no expert but thats the deal so far. The dollar seems real bad when gas is only around $3.00 but maybe it won't hurt as bad if gas can get up to $6 or $7.

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Permalink Reply by Gale on January 15, 2011 at 18:01

Jay I also have stated that Cold weather affects they price of gas to be scoffed at to the point that it turned me off to the site. However I'm not new to Mineral Right checks and I know when the highs and lows come. Typically winter especially when there are lots of blizzard like conditions for extended periods and when we have extremely hot summers. So we like seeing your predictions come to pass or I do especially when it arrives in my checking account on the 24th of the month. Keep em coming Jay!!!

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Permalink Reply by NA on January 7, 2010 at 16:12

Where did you get this information? NYMEX Henry Hub Feb 2010 $5.804

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Permalink Reply by NA on January 7, 2010 at 16:54

I asked where he got it from. Not for the same answer again lol

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Permalink Reply by LP on January 7, 2010 at 17:03

http://www.bloomberg.com/markets/commodities/energyprices.html

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Permalink Reply by NA on January 7, 2010 at 17:07

Ty that's what I wanted to check out

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Permalink Reply by Les Bamburg on January 7, 2010 at 17:25

LI, unfortunately the daily Henry Hub cash price has no bearing on most gas sales or royalty owner settlement statements. Most natural gas is bought and sold during Bid Week and the price is fixed for the entire month. January gas was priced during the last week of December.

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Permalink Reply by Spring Branch,mineral owner on January 8, 2010 at 9:01

Les B, do all the operators use the same time frame to fix gas price for the month to royalty owners? If yes, why the large disparity in price among operators??? if no, how can a royalty owner find out when in the month each operator fixes price?? In other words, "BID WEEK" gives them a lot of room for fancy footwork. "BID DAY" on the other hand has a high, low, and close that is fairly easy to check out and verify. I may be paranoid, but I suspect that the price I get is a DISCOUNT to the LOWER of futures or spot (Henry Hub).

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Permalink Reply by Les Bamburg on January 8, 2010 at 18:59

SB, typically the operator negotiates the sales price for all his gas production during Bid Week last five business) for the following month. The negotiated prices are not specific to just royalty owners as it applies to the entire volume. The operator's production is tied to different pipelines and is in different regions throught the country. So an operator may sell gas on Pipe A on Day 1 and Pipe B on Day 3, etc. Each operator will take the approach they feel helps maximize their sales price.

The disparity may be due to the pipeline or maybe the deductions under the lease agreements.

There is really no such thing as "Bid Day" although some physical gas is sold on a daily basis. I assume you may be referring instead to the daily pricing of the NYMEX Futures Contract but this has no bearing on physical gas prices except for the expiration price on the last day of the contract trading.

Royalty value should be equal to:

1) NYMEX Settlement - Last Trading Day
2) Less - Basis to Index Point
3) Less - Deductions Allowable Under Lease Agreement

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Permalink Reply by Spring Branch,mineral owner on January 9, 2010 at 22:32

That is very helpful, Les. Do you view the fact that the Working Interest owner's gas is largely hedged to be a potential conflict with the interests of the royalty owner in any way? Why would one Operator seem to use the consistently lowest price each month when multiplying by volume. I'm talking price here not value. I understand that different leases have different allowable deductions, but when one operator uses consistently lower "price" in the equation, that could be something that would indicate to me a lack of "arms length" or not negotiating in the best interests of the royalty owner.

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Permalink Reply by Les Bamburg on January 10, 2010 at 4:44

SB, I have asked myself that very question about gas sales in general. ie If a producer has "hedged" large percentages of their production, how hard do they negotiate the physical gas price. There is probably some incentive since the operator would normally have some percentage of their production that is "unhedged".

I do not have a solid answer for the "price" question. Do recognize that Well A may be hooked directly to an interstate gas pipeline (ie Texas Eastern) and incur minimal deducts to its "price" while Well B may be connected to some older intermediate gathering system that charges 20 cents for transport to the interstate gas pipeline. I am not sure that is the case. Clearly a mineral owner receiving statements is in a better position to evaluate. If some one sent me specific "prices" for a month and the pipeline connection information, I could probably evaluate.

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