Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on April 2, 2012 at 14:34

See Henry's spreadsheet tracking natural gas prices paid to lessors and deductions.

http://www.gohaynesvilleshale.com/forum/topics/gas-prices?xg_source...

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Permalink Reply by Larry G Smith P.E. on April 2, 2012 at 23:41

Yes I know the price for natural gas is low and will probably go lower, but that is all the more reason to get top dollar for the gas being produced. I have kept track of the spot market price of Well Head Gas for some times now and royalty owners are being paid well below the spot market price. WHY?

As land owners, royalty owners the procuction company has a duty to get the highest dollar for the gas,  we should be given complete information on WHO is buying the gas. You have to wonder how many times the well head gas from your location changes ownership before they pay you your royalty..   

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Permalink Reply by Henry on April 2, 2012 at 23:58

Larry,

As Skip said, I have been collecting data on what prices people are getting for their gas.  The answer is that it varies quite a bit.   For any single operator, the amount of deductions can vary from one area in the play to another.   My survey indicated that the level of deductions for things like transportation, marketing, treatment, etc. can run anywhere between $0.25 and $1.00 per mcf.  Some operators seem to deduct more, while others seem to deduct less. 

In fact, I see differences (sometimes huge) in the amount of deductions taken on identical gas from a well.  What I mean is this:  Some people have wells that are in joint ventures, e.g., CHK and Plains, or SWEPI and ECA.  They receive payments from both companies for their gas.  These people sometimes see huge differences in the amount of deductions for the same gas in the same month -- just a different company.

Some people have had luck in getting explanations by contacting the operator.  It can take many phone calls or emails over many months, but eventually some of them got explanations.

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Permalink Reply by Larry G Smith P.E. on April 3, 2012 at 1:51

Thanks for the reply but I still question why they have so many deductions, my lease makes it clear as to what can be deducted. My question is still WHY so many deductions and different prices. If they are taking money from the royalty owners, then we the royalty owners should have detailed information as to what, when and why. We are selling our share of produced gas with no information from the companies. My property was leased to one company, another company in our section drilled the well, now we are told that the company that leased our property has no control over what the producer does. I do not beleive that, we were not told the well was being drilled. I happen to go by the property, saw a drilling rig, got a GPS reading for the location, plotted it on my computer map. Until that time I had no idea that any thing was taking place.  Yes, I do plan to continue trying to get a more transparent information. I had to go to the State Attorney Generals office to get our royalty checks started and will go back to get them to ask the questions that I am not getting answers to. I am a PE and work in the pipeline industry, have done this work for the last 50 years now. I have seen the games that producers play.  I will be heading to Grand Isle to evaluate some employees for a production company today, should be back in Lafayette by Thursday at the latest.

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Permalink Reply by Skip Peel - Mineral Consultant on April 3, 2012 at 2:52

My property was leased to one company, another company in our section drilled the well, now we are told that the company that leased our property has no control over what the producer does. I do not beleive that, we were not told the well was being drilled.

Having a lease to one company while a different company is the operator of the drilling unit is very common.  And the operator has wide ranging control over the development of that unit under LA Force Pooling statutes.  Furthermore state regulations require notice to Interested Parties upon application for a compulsory unit designation or for the location of alternate unit wells within that unit, not for the drilling of a well.  In these regards you will find no interest from the State AG as they are legal and usual. 

Now on the amount of deductions, join the crowd.  There will likely be several suits coming to trial (hopefully) later this year that will set some legal precedents.  The main challenge is that the courts seem hesitant to make any decisions with sweeping implications such as might come from a class action.  The courts have already created class definitions that make it difficult if not impossible to form classes of any size.  Therefore only small numbers of lessors can band together and rulings in their cases will be limited to lessors with basically the identical circumstances.

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Permalink Reply by Les Bamburg on April 3, 2012 at 2:49

Larry, I am not sure if you are referring to the daily quotes of the NYMEX gas futures contract or the daily Henry Hub cash price.  the majority of natural gas is sold on a monthly basis rather than a daily basis.  Generally the only publicly available information that ties to monthly prices is the final settlement price of the NYMEX futures contract that occurs three business days before the end of the previous month.  For example the April contract settled on March 28th.  The market price in NW Louisiana is 10-15 cents/MMBtu below the NYMEX price.    

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Permalink Reply by Larry G Smith P.E. on April 3, 2012 at 3:52

Thanks Les B, I check several locations for prices. I live less than 20 miles from the Henry Hub in Erath LA. I have done many jobs there for the Hub and the Old Texaco Plant across the road from the Henry Hub. I am a consulting engineer and do work for most of the Pipeline Companies. I am just instered in finding out WHO is the buyer for the Gas produced on the section that I am in.

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Permalink Reply by RONNY on April 3, 2012 at 4:52

Must be a Chesapeake well.

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Permalink Reply by Larry G Smith P.E. on April 3, 2012 at 5:22

no the lease is with Chesapeake but he well was drilled and is operated by XTO.

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Permalink Reply by DrWAVeSport Cd1 on April 3, 2012 at 5:45

LGS, P.E.

Thanks for joining GHShalers.

I am Chesapeake Unleased Mineral Owner.  Lucky Me! Lucky You.  LOL

CHK sells ALL my nat gas to CEMI...Wholly Owned Subsidiary of CHK.

Does CHK sell its nat gas as a legitimate "arm's length transaction" to itself?   

That's the Billion Dollar Question. IMO

DrWAVeSport Cd1 4/3/2012

 

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Permalink Reply by w.r. frank on April 3, 2012 at 17:22

CHK is legally obligated to pay you the amount owed under your lease agreement. It doesn't matter how CHK and XTO divide the proceeds under their operating agreement. Unfortunately, CHK withholds "post-production" expenses from many lessees even though it has contractual "no cost" clauses in its lease agreements.

As Skip says there is litigation pending against CHK. Also, unfortunately, class action suits by royalty owners have been effectively prohibited by LA courts. So a royalty owner must go it alone or with a small number of other royalty owners who have similar claims and can join together to notice properly under LA law. If enough royalty owners, who are LA voters, would make themselves heard to the legislature perhaps they will change the laws. With CHK rigs down from 39 to 9, there aren't many CHK voters left in LA (as opposed to CHK lobbyists and lawyers). They former NW LA employees are all getting "oily" in the next CHK liquids rich tout.

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Permalink Reply by DrWAVeSport Cd1 on April 4, 2012 at 4:58

w.r. frank,

I am not leased by CHK.  However I am a CHK Unleased Mineral Owner of a CHK nat gas well in Caddo Parish, LA.  I receive two sets of documents from CHK showing their monthly nat gas sales.  For December 2011, I received "CHK 4th Quarter Dec. 2011 Production Report" showing December 2011 nat gas sales to CEMI for $2.38.  My CHK Operating Inc. Revenue check for December 2011 shows nat gas "price" to be $2.90.

If you can explain this, it would be much appreciated.  CHK sure won't. 

DrWAVeSport Cd1 4/4/2012

 

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