Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on October 13, 2017 at 9:57

Insufficient information provided.  You'll have to provide some information about the well.  Name, operator, section-township-range, serial number, etc.

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Permalink Reply by RONNY on October 15, 2017 at 3:49

Assuming a 640 acre unit. 

120/640 x .20 = .0375 decimal interest

.0375 x Net Value of gas sold = your portion

your portion - deductions = revenue check

   

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Permalink Reply by Bev Santin on October 15, 2017 at 6:57

When setting up a revenue deck for distribution the interest of all interest owners must add up to 1.00000000, if not, it goes back to the land department. All accounting decks for revenue and joint interest billing will add up to 1.00000000. Accounting programs I've worked with carry the interest out eight places. Your exact interest and deductions allowed are stated in your lease agreement. If the lease unit is 640 acres and you have 120 acres your interest would be 120/640 or .18750000, of the amount to be distributed to revenue owners, unless your division order states otherwise. So pull you lease agreement and division orders you have signed and check your interest and deductibles allowed. You may see a break down of royalty owners ( those who lease land ), and working interest owners, ( those who put up money to drill a well ). Your check should list your interest, product sold (gas, oil), contracted amount buyer paid for product, this is the gross amount, then you see the revenue taxes paid and then you see your allowable deductions, as per your lease agreement. Finally you see the net amount, what you get paid. If the amount of your check is less than $100.00 we will not print a check until it adds up to $100.00, end of year clearing, or you call and request a check. Save all check stubs for your tax preparer. I hope this answers some of your questions.

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Permalink Reply by Skip Peel - Mineral Consultant on October 15, 2017 at 7:14

Welcome, Bev.  It's good to have members with pay deck experience to help answer questions.  Your decimal interest calculation fails to account for the royalty fraction (.20).  Ronny's calculation above is correct.  Most O&G leases are short of specific deduction language and many operators do not recognize basic "no cost royalty" clauses.  So deductions are whatever the operator chooses to charge even to the point of one in particular deducting for capital costs (transportation and treatment facilities). Standard O&G lease forms contain a legal description of a tract but not the fractional ownership interest in cases where there is more than one owner.  So a ten acre tract could be owned by ten different people but each will have a lease that states 10 acres.  Thanks for the explanation on minimum payment guidelines for royalty checks.

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Permalink Reply by kittycatmama on October 17, 2017 at 13:48

ok Ronny if a person was in a cross unit lateral with approx. 1280 ac. with 25% net lease how much per ac would it pay at $3 gas. Can you show the equation on a per acre basis

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Permalink Reply by RONNY on October 17, 2017 at 14:34

KCM,

You have not provided enough info to compute what you've asked for.  But, based on my personal experience here is the calculation used to determine CUL decimal interest. (assuming 120 ac mineral interest leased at 1/5)

120/640 x .20 = .0375 x (% of lateral which is in your section) = new CUL decimal interest

The percentage of the lateral which produces from your section will be calculated and disclosed in a separate division order for each CUL drilled.  In one of my sections I own 2 acres, leased at 1/5 and 65% of the new cross unit lateral produces from my section. 

So my calculation is 2/640 x .20 x .65 =  .0004062 which is my decimal interest for the new CUL well. 

Hope this helps.

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Permalink Reply by LN on October 17, 2017 at 6:36

KCC, 

Thanks so much for this information.  It is extremely beneficial!

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Permalink Reply by KCC on October 17, 2017 at 8:04

OK, thanks to everyone, this is a great discussion! This is a hypothetical scenario so irrespective of the operator, deductions etc. lets assume that the $3.00 is net of every deduction imaginable, and that the 120 acres are part of a 640 acre unit with a 20% royalty. My disconnect is  from the fact that the 3bcf over the productive life of the well is converted to "therms" and is sold in "therms" instead of "cfs". Is it correct that 1bcf  needs to be divided 1000 to create an equivalent unit of measure in "therms"??

So I guess my disappointment arose when my landman divided 3bcf by 1000, and came up with a number similar to Ron's number. I wanted to multiply by 1000 to convert to 1mcf and when I asked why divide and not multiple he was unable to explain the math. He told me that it was simply done that way! I tried to calculate the value of a well with a production potential of 3billion bcfs.....and my calculation was off by a factor of 1000!!

So I guess the take home is that NG is not sold in cfs but therms which is 1000cfs and you must convert first!! 

Is that correct??

KCC

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Permalink Reply by Skip Peel - Mineral Consultant on October 17, 2017 at 8:23

Your welcome, KCC.  The correct unit of measure is an mcf (thousand cubic feet).  That is the basis of the price.  Some many dollars and cents per mcf of natural gas. It's easier to say or write 1 Bcf than 1,000,000 mcf.  Note that if you add the extra three zeros for mcf the number would be 1,000,000,000 (1 Billion).  cfs is cubic feet per second and is a measure of flowing water, not natural gas production.  Therm is a unit of measure for energy related to Btu but I've never heard a landman use that term in discussing payment of royalty for natural gas.  I think you need a different landman.  :-)

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