The Uncertainty of It All

I think I posted this to the wrong group, so I am reposting it.....

I had an interesting conversation with someone last night about the gas and oil business. I'm just a landowner thrown into this, so much of it went over my head.  But I hung up the phone with these basic concepts: even IF you get into a unit, and IF there is a well drilled, there are a thousand and one ways the gas and oil company can screw you.  You might have a pad and get no royalties. You might be in a unit and get no royalties.  You might not get royalties for all the wells in your unit. Plus, no one REALLY know what they are pumping out because there are no "meters" on the wells. So you are automatically screwed there--yeah, they're going to give you royalties on the whole amount--not.

Honestly, it seems that selling the mineral rights (if the price gets high enough) and just selling the whole mess and getting a new place somewhere is beginning to make more sense.  Can anyone comment on the above?  If it is all true? And how often does it happen? And what is the difference between a drilling unit and a production unit?

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Permalink Reply by Kathi Albertson on February 26, 2014 at 10:38pm
Tony,

How does the information get reported to ODNR? Do you know if the state has anyone trained to independently audit these meters? I have been told that there is a move in the works to make sure that the same figures will be used for both state and county taxes but am assuming they will still be the self reported numbers from the producers.
Permalink Reply by INVICTUS on February 27, 2014 at 3:58am

O/G co's are expected to report production numbers to ODNR.

ODNR does NOT do audits, nor verifies anything. Again, this is self reporting.

It is incumbent upon the landowner/Leaseholder to do their own due diligence at this.

I have mentioned before that in contacting a number of exceptional audit firms (Stark County, in my case) they DO NOT know how to audit these companies.

However, several are partnering with some national/international accounting giants who do know how to do this sort of thing.

Hence, $$$$$ must be spent to do a full dress audit.

Ohio state law and ODNR are, in my view, insufficient watchdogs from the perspective of Leaseholder interests.  Now the politics of how much government oversight come into play.

If something is to be done, it needs to be done quickly.

2014-2015 will see a substantial ramp-up of finishing the development within CHK's "Core of the Core", followed by actual o/g production. Royalties will flow and as far as Royalty owners/leaseholder are concerned: It's time to get serious about managing relations with your producer, in my case Chesapeake.

I'm convinced that one CAN verify what is being taken out of one's mineral interests.

I cannot feel sympathy for those who will not try.

TONY YURINA: Who just posted hours ago, gave some stunning insight into the mechanism at the well pad that provide actionable clues that I will/am implementing in verifying these production numbers.  Thank you Tony.

Permalink Reply by Tony Yurina on February 27, 2014 at 12:03pm
  • The totalized meter flow volume for a given period (quarter of one year for horizontal wells) plus or minus any known adjustments such as meter failure or other, would be the proper volume number reportable to ODNR.    
  • To my knowledge, the state does not have anyone trained to audit the fiscal meters.
  • I have a hunch, that when the severance taxes get finalized and the state has a hand in the (Till) tax revenue, then you might see some state level involvement with fiscal meter audits and gas measurement accounting data audits. 
Permalink Reply by INVICTUS on February 27, 2014 at 4:05am

Tony, am I correct in interpreting that gas VOLUME can be calculated at the wellhead; or is it calculated at the "sales point" when it leaves the pad and enters the pipeline?

And

I know Methane is transported via pipeline. What are the heaviest hydrocarbons that can typically be transported in the pipeline?

I'm trying to understand the basic separation process that takes place at the well pad itself, well before the processing plants down the stream.

Permalink Reply by Kathleen on February 27, 2014 at 8:05am
Hi,

Look into the white six pack tanks that are put on the pads. Some sites show how it's all seperated.
Permalink Reply by Tony Yurina on February 27, 2014 at 11:56am

Each well is metered separately before the gas leaves a multi-well pad. 

Perhaps if there is only one well involved, then the fiscal meter could be at the point of custody transfer into the midstream or transmission pipeline.

Permalink Reply by deer spotter on February 27, 2014 at 8:55am

Thanks Tony, Also on large volume we would install a chromatograph to update the flow computer hourly. I've done field audits for landowners. With most E&P companies it is very difficult to get them to agree

Permalink Reply by Tony Yurina on February 27, 2014 at 12:28pm

Adding to Deer Spotter's comment about large volume facilities using gas chromatograph's. 

In addition to the gas volume being calculated by the meter and associated appurtenances and flow computer providing a total flow volume, plus a number of data points, ie. instantaneous rates, pressures, temperatures, etc...

Each meter should have a Btu heating value input.

This can be done with the process chromatograph which analyzes the gas stream for all important measurement constituents.  This unit has a live output which serves as the gas quality (Btu) input to the flow computer.

OR it can be input from a properly obtained gas sample that is analyzed at a reputable laboratory, and the verified data inputted manually as fixed factors into the flow computer associated with the fiscal meter.  

Here is what is important.  The Btu value applied to the metered volume is combined to yield a total energy value.  Most of the heavy shale gas that produces condensate will have a heating value of over 1,200 Btu's per each cubic foot and some are as high as 1,245 Btu's per cubic foot.  

This Btu input must be in place for the total energy value to be ascertained.  IF not the total energy transported off the well pad to another pipeline will not be reflective of the correct amount of energy being sold.

There are two things at work here, gas quantity (quantitative) and gas quality (Btu's) that provide for the total energy passing through a fiscal meter.

The gas quality data input, into a flow computer would be a high priority audit item on my list.

Thanks to Deer Spotter for reminding me to expound on this important topic.

2z248p19vqnh9Permalink Reply by 2z248p19vqnh9 on March 20, 2014 at 10:01pm

Tony Yurina - good info. ...: "If one was smart, that individual would have audit rights for both, office accounting and field audits for fiscal meter accuracy."

...HOW does one get HONEST answers concerning such information? Are the G/O Co.'s on the up & up concerning this?...and HOW do you know? You can't get into their books to check. SO - HOW do you know if things are on the up & up? LOOK at what gets done with 'deductions' to the miserly 12.5% royalty checks.

They want what you've got - and now they're taking a little but more - penny by nickel by quarter & dollars +++. Rats in a cage? Who is the landowner? Right is Right & Wrong is Wrong. In a way - they are like Russia...they do WHAT they want WHEN they want & figure that YOU won't twitch.

-------------------------------

IS there such a thing as TRUE 'gas measurement accuracy' that is to be GAINED by the LANDOWNER concerning fiscal meter accuracy? You are involved IN the G/O industry, yes?

Can you show a picture or basic diagram of basic Gas /Oil meter layout - can a person go about checking this themselves? What flaws in the meter reading can be detrimental to the LANDOWNER? & HOW does one go about double-checking to be sure not getting shafted?

As one light lights another, nor grows less - so nobleness enkindles nobleness. The squeaky wheel gets the OIL? No one takes your power away - you give it away....

Best Advice?

Permalink Reply by Philip Thackray on February 27, 2014 at 8:11am

“Vic”

 

I’m familiar with the XTO well pad equipment here in Southwestern PA.  As Tony said, everything is measured at the well pad for each well and transmitted via a cell phone like system (well pad to well pad) back to the mother ship.  Each well has an electronics box that has an LCD display.  At least for now, these boxes are accessible to the well pad landowner.  I’m not the well pad landowner in my unit but my good friend is the well pad landowner of a separate XTO unit and the well tender showed him how to access all of the information via the LCD display.  In the next couple of weeks my friend will show me how he accesses this information and I will find out exactly what information is available.

 

So far, things are pretty friendly here between XTO and the landowners in part because most of the employees are local people who worked for the local company T W Phillips Production that XTO bought.  XTO’s first production began in June of 2013 so as royalty checks arrive, curiosity is growing.  Hopefully more information will be forthcoming.

 

Phil

Permalink Reply by Paul Martinelli on February 27, 2014 at 8:29am

I see a GREAT Business opportunity here.....Forming  a company that will work for landowners to have their wells/royalties audited.

 

 

 

Permalink Reply by Philip Thackray on February 27, 2014 at 8:34am

Paul,

I'm in discussions with Rusty Braziel at RBN Energy about that very thing.

Phil

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