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Permalink Reply by The Hunter Man on June 6, 2010 at 3:03am

I know my lease percentage, I was inquiring as to how is the price figured on a monthly basis since the prices are up and down. My cutoff date is the 15th of every month. If at this time the prices have been between $4.10 and 5.23 for the month, what is the figure ($amount) that will be paid against the % I am to receive. In other words does the oil co. average the various prices over the month and pay lets say 4.79 or pay the lowest price of 4.10 or the highest of 5.23 ?

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Permalink Reply by Sam Douglass on June 17, 2010 at 4:16pm

Nobody knows what the price of gas will be. It depends ... depends ... depends ...
But the educated guessers like Chesapeake seem to be using $5 for the purpose of making projections and talking about $7 of more in the relatively near future.

Then you have to consider whether this is the supposed wellhead price [like there is some little elf standing by the well and passing out money or the price at the delivery point to the transmission pipeline buyer. Which will your royalty be figured upon?

But however you figure it, the amount should be impressive if the average production the first day or so from each well is over 4000 cubic feet.

Companies are reporting 70% or more return on their investments.

Have you heard of any "dry holes" in the drilling to the Marcellus shale? Before spending all the millions, these fellows do their homework.

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Permalink Reply by marilyn ascani on June 23, 2010 at 7:44am

I have heard that a drill totally missed the shale in Bradford County and hit sand.

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Permalink Reply by Dean Harris on June 21, 2010 at 12:46am

Most companies use the closing price on the NYMEX for each month, unless they have locked in gas prices at a set rate for a specified period of time. The NYMEX price is settled the 3rd business day prior to the end of the month. For example, the price for July will be set on June 28th. So when you watch market prices, what you see in one month (ie: June) has no bearing on your check for that month. Also, companies have the right under some gas purchase contracts to "lock-in" prices for a period (usually up tp one year) at an average of future prices for the period. When this happens, then the market doesn't affect the price you receive on your check until the lock-in period ends.

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Permalink Reply by Sam Douglass on June 21, 2010 at 2:54pm

Read your lease. They are all different. I think it would be unusual to see the NYMEX price mentioned in the lease. An advantage would be that you might be able to see a published price. Some leases are vague about price. Some say it will be based on the price the lessee gets when gas is sold at the transmission line [then you have to figure out how you find out what that price might be unless you just want to take Lessee's word for it; maybe you have to worry about whether or not the sale is an arms-length transaction.] Some leases deduct the costs incurred [as determined by lessee] of getting the gas from the well head to the transmission line where it is sold - the so called "well head" price - an artificial price. And there are other things in other royalty clauses. Is there a right to audit all this figuring and pricing by the Lessee? It gets a little complicated. Maybe you have to go look at the books in Texas. How about line loss?

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Permalink Reply by Roger Gann on June 25, 2010 at 8:40am

Jim is correct. The price you receive is completely dependent on your lease contract with the operator and / or the sales contract the operator has with the purchaser of the gas. Many royalty lease agreements today specify whether or not you will receive an average of the posted NYMEX at a certain delivery point or what the operator actually receives from the purchaser.

The benefit of the NYMEX is a price that you, the royalty owner, can actually track through a monthly published document. You can subscribe to this document on the NYMEX website. If you are receiving what the operator receives, then you are dependent on any contracts they sign with the purchasers, which could have any number of arrangements from published index prices to locked-in agreements on set periods of time.

Another big factor in your lease agreement are the allowable deductions the operator may pass through to you as a royalty owner. This will also affect your price. Most operators don't put enough detail on your remittances to show all deducts taken from your revenue other than taxes and some transportation. Therefore, you may see an average NYMEX price of $4.79 but have additional deducts of $.25 for transportation, processing, etc. that lowers your average price to $4.54. Additionally, the price on your remittances may be stated as a price per MCF. This is a backed into number and not a contractual amount that the gas is sold for. Natural gas is always sold based on it's BTU content.

Hope some of this helps. Let me know if you need more clarification. These types of reviews is what my company does for royalty owners and non-operating working interest owners.

Roger

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