Rice profits up but royalties down ?

Can anyone explain how Rice Energy profits seem to keep going up, while all the other companies are losing money, yet royalty payments are going down?  If the market is so depressed how are they doing so much better than the rest?  Thanks for any thoughts.

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Permalink Reply by Gary L. Ford on November 13, 2015 at 1:55pm

Makes sense

Permalink Reply by William Dotson on November 18, 2015 at 1:03pm

With the current TX shale wells that started the horizontal drilling they are doing 2nd fracks after 5 years. The 6th year production is out and is more than the first years production. 

Permalink Reply by Gas Boy on November 12, 2015 at 9:49am

Royalty owners receive "wellhead" price of natural gas - whatever nat. gas is selling for on NYMEX.  The O/G companies are selling their gas on the "hedge" price - selling XXX million Mcf nets them a higher per Mcf price of nat. gas.  "Wellhead" or NYMEX may be $2.25/mcf, but the "Hedge" may be $3.35 or higher.  Where does the difference go? Straight into the companies pocket.

Permalink Reply by Thomas Rockwell on November 12, 2015 at 1:38pm

Not always the case.  Oxford had forward contracted for gas prices, and when Eclipse bought them out they continued to pay royalty on the contract price (well above market price) for the first set amount of production.  Beyond the set amount, the price paid was market price.  Our latest royalty statement showed prices of $3 to $4 dollars for the first 8 months of the year.  The only deduction is the state severance tax.  I realize that forward contracting may not be quite the same as hedging.

Permalink Reply by Barry D on November 12, 2015 at 3:53pm

Gary,

Many questions, but good questions.

First:

It appears that you feel that Rice may not be treating you fairly. Can't answer that.

Why is Rice doing better than other companies? All companies are not the same. Also, Rice has extended experience in Shale development that other companies may lack. Shale development is a whole new animal so the experience gives them an edge.

Rice is also local, compared to so many other companies. Decisions that save money are made and implemented quicker. I have worked for large and small companies; answers and decisions come faster from small company management.

Company profits compared to royalties - Simple answer, royalties are strictly based on production. Company profits are the result of several factors; production being only one.

For example - let's say 5 years ago the drilling and completion of a shale well was $10 million dollars; but today that cost is $7 million, due to more efficient procedures, new technologies, availability of infrastructure etc. Wouldn't that $3 million saved show up on the bottom line of company profits? And, at the same time have no effect on your royalty? Of course.

Just my thoughts.

Permalink Reply by Gary L. Ford on November 13, 2015 at 1:57pm

Plus, for the record, Rice has always treated me square.  Anytime I had a question they responded, except this time.  Everyone here has made good common sense explanations for why the things that are happening are happening and some are things I never thought of before.  Thanks to one and all.

Permalink Reply by K2 on November 17, 2015 at 3:50am

I share the concern about Rice Energy's royalty calculations.  Our property is in a unit that is shared by Rice and Gulfport.  Consequently, we get royalty payments from both companies for the same well.  But Gulfport's "well head" price for our share is significantly higher than Rice's.  Rice's investor publications state the price that they get themselves which is hedged.  That price is much higher than what they use to calculate our royalty.  Rice says they don't hedge landowner's share of the gas.  But my question is do they sell our share of the gas at the hedge price and keep the difference between the hedge price and what they say is the well-head price?  It also bothers me that they have set up a pipeline company as a subsidiary which I think they sell the gas to before transferring it to their final customers.  Makes me wonder if the well-head prices are artificially low.  I don't know if any of my concerns have merit but I sure wish there was more transparency in how the royalties are determined or at least some explanations from Rice about how they make their calculations.   

Permalink Reply by Dalmorloson on November 17, 2015 at 9:52am
K2...I too have royalties from Rice and Gulfport but as of yet have not recieved anything from Gport yet. Is there a way on this site to talk privately?
Permalink Reply by Nancy on November 17, 2015 at 5:30am

We also have Rice Energy and received our first full month check for August. In July we only had 3 days production. The amount of the check was lower than we had anticipated in the beginning. The low cost of gas has changed the royalty amounts as expected. Our well also seems to be a low producer. Yesterday I saw Septembers production figures and was surprised to see that production has gone down 13% from August. At this rate we definitely are not going to be close to what we expected. Maybe there is an explanation for the low production , do they choke back sometimes if price is low. The surrounding wells have much higher production. 

Permalink Reply by K2 on November 17, 2015 at 6:51am

Yes, our well appears to have been choked back at least 20%.

Permalink Reply by Nancy on November 17, 2015 at 7:19am
K2
Did the company tell you they were choking it back ? It's hard to figure out because they so tell you that the production will drop. I just did one expect it to drop in the 2nd month.
Permalink Reply by K2 on November 17, 2015 at 9:45am

Nancy,

Rice doesn't tell us much of anything.  But they do publish an Investor's Presentation for their stock holders and also have an earnings conference call.  In August, they stated that they were choking wells in Belmont County Ohio by 20%.  They say this restricted flow is to optimize long-term production from their wells.  They stated that " we recently adjusted the flow rates on our Son-Uva-Digger and Gold Digger wells by approximately 20% and in doing so observed a noticeable increase in well performance on both pads." So, their choking of the wells appears to be a well management production strategy and not something due to lower gas prices.  Apparently choking the wells stabilizes their flow rates and provides a flatter production profile. You can find Rice's investor presentations at their website at this url:  http://investors.riceenergy.com/EventsPresentations    The November presentation shows charts with the restricted flow rates for the Ohio wells.

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