Replies to This Discussion

Permalink Reply by Henry on August 12, 2010 at 12:28

adubu,
It appears beyond my skills to figure out where the gas is actually sold, and to whom. All I can say, so far, is that lessors who get their statements from Chesapeake are averaging about $1 less than all the others in the gross price that they are receiving for gas.

However, to be fair, I have data from Chesapeake lessors in only two fields. I REALLY NEED MORE DATA! Please, please, please you royalty owners out there -- send me your data.

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Permalink Reply by VSC DeSoto South on August 12, 2010 at 7:21

Who does Encana sell their gas to from the wellhead?
Would all wells gas be sold to the same vendor or does it vary by the location of the well?

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Permalink Reply by Les Bamburg on August 12, 2010 at 8:07

VSC, EnCana (and other large operators) likely sells their gas at points significantly downstream from the wellhead. The natural gas from the Haynesville Shale could be pooled with EnCana's gas from other sources and sold to multiple buyers.

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Permalink Reply by FXEF on August 12, 2010 at 8:09

VSC,

It will vary by location of the well, it depends on what field the well is located in.

Encana wells in the Holly field goes to GULF SOUTH PIPELINE COMPANY, LP and Caspiana field gas goes to J W GATHERING COMPANY.

For a complete list run a query from "R5D DE Disposition by Operator & Field for 3 years" on SONRIS.

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Permalink Reply by Les Bamburg on August 12, 2010 at 9:35

FXEF, the Sonris information does not provide gas purchaser information but rather the gas pipeline interconnected to the lease or unit.

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Permalink Reply by FXEF on August 12, 2010 at 10:14

Les, thanks for the info. I'm still in the learning curve. So I am guessing that the only way to find out who purchases the gas is to ask the operator.

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Permalink Reply by VSC DeSoto South on August 13, 2010 at 9:31

So if Centerpoint Energy Field Services takes the gas from the well, are they the transportation and gatherer of the gas vendor or the entity that is buying the gas, from which the costs would be deducted? Is Centerpoint a subsidiary of Encana? It should not matter though if we have a cost free lease, which we do. Not leased with CHK, so I hope there is no funny business with royalties and hiding the deductions.

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Permalink Reply by Les Bamburg on August 13, 2010 at 16:06

VSC, it is likely that CenterPoint Energy Field Services only gathers the natural gas and transports to various interstate gas pipelines. CEFS is not a subsidiary of EnCana but rather just has a contract with EnCana, Shell and others to provide various services (gathering, compression, treating, inc) for a fee.

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Permalink Reply by Henry on August 13, 2010 at 22:56

VSC,
A cost-free royalty will not govern the price for which the operator sells the gas. It only governs the deductions. I have seen leases with language (which I did not understand at the time) that define the price to be that with the lessee would receive from an "unaffiliated and unrelated entity." This lease went on to say that if the gas was sold to a company at a price that was not negotiate at "arm's length," then the market value is "market value shall be deemed to be the best price obtainable from time to time in the field or area where the gas is produced.

So obviously the lawyer who wrote this in was well aware of the potential for shady dealings when selling gas.

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Permalink Reply by JD on August 14, 2010 at 1:22

Henry and Les B,

So, if you were structuring a lease today, the recommendation would be to add a cost-free royalty clause plus an additional one like the last sentence?

if the gas was sold to a company at a price that was not negotiated at "arm's length," then the market value is "market value shall be deemed to be the best price obtainable from time to time in the field or area where the gas is produced."

In your opinion, would that protect the royalty owner and give him/her reasonable assurance they would be paid a price close to the NYMEX regardless of who purchased or transported the gas?

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Permalink Reply by Les Bamburg on August 14, 2010 at 3:41

JD, I am not sure what you classify as close to NYMEX as the market price in NWLa/ETx is some amount below NYMEX.

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Permalink Reply by JD on August 14, 2010 at 4:35

Les B,

Earlier in our our discussions you steered us toward the NYMEX when we spoke of Henry Hub. Your comment shows below. Now you are steering us back toward the Louisiana area. Seems like a cat and mouse game trying to pin you down for an opinion. Well, let me try again.

The lowest price reflected on the natural gas price listing you provided showed $3.97 (by Centerpoint) for the month of May. That falls in line with the numbers collected by Henry for the month of May for every producer but CHK. So my guestion is this. Shouldn't we have reasonably expected to receive in the neighborhood of $3.97 for gas in the month of May if we had the clauses in our lease that I mentioned above?

Respectfully,
JD



Attached is a listing of relevant natural gas price index for 2010 that can be used for reference.
Attachments:
Natural Gas Prices 8-5-10.pdf, 6 KB

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