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Permalink Reply by J Landowner on January 25, 2013 at 1:08am

Kinda sounds like what XTO is probably doing (with the dummy company you mention). The pipelines they have been installing from the well heads to the compressor station and beyond are with their subsidiary Mountain Gathering.

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Permalink Reply by Tony Yurina on January 29, 2013 at 10:22am

Oil & Gas Production Companies and Landowners both want the best of both worlds, reality is the end result is somewhere between these two extremes or ideally, the royalty point is somewhere in the middle.  More on this later.

Pipeline and Gas Distribution companies do not want to transport or distribute gas that is loaded (saturated) with water or hydrocarbons, this increases their operational problems and drives up O&M costs significantly, outages due to hydrate formation or liquid accumulation is a real operational concern, markets have been lost due to both conditions.  The typical landowner is usually not aware of this, unless the landowner has free gas from the production well that is not processed gas, then you would begin to understand the problems hydrates and water will cause.  You will have to constantly tend to equipment when using free unprocessed gas, this comment is from many years of landowner experience. 

Many of us are familiar with the old production, a meter at the tank battery for each well, as Brian Powers descried above, then somewhere down the line several of these production lines converge at the point of sale meter at the transmission pipeline.  

The individual meters at the tank battery's meter each landowner well volume separately, Landowner A, B. etc. if your well produces more, you receive a larger check. This is only fair.   

Theoretically, the sum of Meters A plus B would equal the point of sale meter at the pipeline.  This almost never happens. 
Why?

Gas used in operations. Lost gas. It is reality.

Separators use gas to dump liquids into tanks, well tenders blow drips, minor leakage, instrumentation gas used in operations, heater fuel gas used, relief valve vent or blow off, lost gas, some gas used for dehydration fuel to dry the gas.  Let's not forget the equipment maintenance cost and hauling water away and disposal of the water/brine.... there are many hidden costs here that us landowners never see. 

Now, finally the gas piped to the point of sale meter is acceptable by the pipeline company meaning the heating value is in the correct range to properly operate appliances and furnaces, commercial use equipment. The water content is low, under 7 pounds of water per MMCF, the hydrate formation issue has been eliminated by gas conditioning and hydrocarbon processing and dehydration equipment.  The gas can be transported via transmission line, compressor pumping or to a storage field, the gas quality at this point will not cause serious operational issues or customer outages. 

I hope readers understand the Production companies must process and clean up the gas to meet tariff specifications.  This has a cost.

This cost in the past has been mainly fuel to operate the processing equipment located between the well head and the point of sale.

Multiple shale gas wells from various units and landowners must be quantified or separated  by a form of well head measurement, in order for each unit to receive the correct apportioned volume of production.

The costs associated downstream of this well head meter, fuel gas used in operations for gas conditioning in order to make the gas marketable at the point of sale, seems to be the point of contention between trying to understand "royalty paid on well head meter" or at "the point of sales meter".  

As a landowner, I have to ask myself, what is the gas worth at the well head if it is not marketable?  A well shut in due to gas quality issues it is creating on the pipeline is not worth anything for that time period.

Let's say 5% of the gas produced for a well is used to make the gas marketable at the pipeline point of sales meter.   Now the gas is marketable, 30 days per month and income is being generated for both the Producer and Royalty owners. 

Now the problem I have is when royalty post production cost deductions include, equipment maintenance, marketing department costs, purchasing pipeline transportation capacity, meals and recreation, etc....  in addition to the gas conditioning fuel costs and gas used or lost in operations to make the gas marketable. 

If a landowner specified the royalty percentage is at the point of sale of all products, ie. sales meter, tank battery outlet valve, NGL liquid meter sales, without any deductions, this would be fair.  

Keep in mind, the associated well head meters divide each landowner well on a proportionate basis in order to obtain the proper individual well royalty at the point of sales meter (where dozens of well volumes are aggregated)  at the transmission pipeline many miles away from your well. 

In the WV Tawney class action suit against a well known company,  the courts held that the point of sale meter did not reflect the wellhead gas volume, so the work back method was used to (add) some percentage of gas to the point of sale to correct for the fuel gas used, or gas lost or consumed in operations, in order to compensate landowners for the well head gas volume/price paid to royalty owners, this is the best I can recall that civil action course of events and outcome.  Something like $125 million was the damages award to royalty owners, and around $300 million punitive damages was awarded, unfortunately for the gas company.   I don't recall the Dominion issue pointed out in an earlier post... 

It would seem like if you lease in WV this issue is taken care of. As for other states, the lessor must guard against excessive post production cost deductions from royalty payments.

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Permalink Reply by Robert W. Sandera on January 29, 2013 at 2:21pm

I live in Guys Mills Randolph township Crawford County.  Everybody runs raw gas and nobody services their equipment or has water or other issues with the gas. And I am qualified to rebuild any equipment.

Sale at wellhead price is what it is and goes by market value. But when a company sets up a dummy company to sell it for 15 percent under market value and says that's what they had to do and then they turn around and resell it and keep the 15 percent its basically embezzlement or fraud.

The quality of gas depends on the area and how good of job the frackers and drillers did. Wells on one side of a road may be full of water and other the other they are not. I have an excellent well. I got to believe our area gas goes right into the distribution unit and is not cleaned more than it is at the containment area.  I know they don't want you hooking up to their equipment.

My well does not share. I am NOT unitized means I am paid the full price for all my gas by state law minimum is 12.5 percent. Unitized wells may get 1 1/100 of 1/640 x 12.5 percent for 100 acres which to me is  rip off.  I got over 4 times what my neighbors got.

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Permalink Reply by Jesse V. on January 29, 2013 at 3:08pm

The depth of information here is exceptional. I am very thankful for the thought and time that you all have put into clarifying this issue. I hope that others who come looking for answers to the ins and outs of these gas plays click on this discussion.

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Permalink Reply by Brian Day on January 29, 2013 at 3:46pm

I am glad to see that so much useful discussion has come out of my inquiry.  From my point of view and perhaps that of other Pa. landowners and landowners in other state, I hope this information may lead to a re openning of the legal clarification of what "at the well head" should mean.  In West Virginia, it seems that damages were awarded to lan owners after definitions were re-examined.  Perhaps that could happen in Pa. or Ohio.

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Permalink Reply by Denver Gallentine on January 29, 2013 at 4:35pm

Well said Brian. Posts like your's, Anthony's and others have given us valuable explanations thanks to all who have presented good, solid questions and great explanations. - Denver

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Permalink Reply by Robert W. Sandera on January 29, 2013 at 8:43pm

I'll dig up my lease for wording on paying but I was checking each month governments figures on gas prices and at the Henry Hub price seemed right in line with how they paid. When W was in there is when  our wells were done and they ran gas from 3.00 up as high as 12.00 and 16.70 After Katrina.  W may have very well worked with the Brother of the guy that owns my gas well company, it seemed as though some corporate welfare brought in all top rigs from Texas. Then it ran like 6-9.00 more less by hot or cold weather. (Incidentally Hot weather drives up prices to as electric plants ramp it up for peoples air conditioners.)

and day after Obama was in it was 3.00 again. I think somebody feared an investigation. I know Clinton had some sort of agreement for offshore drilling if gas was down to 3.00 for consumers. Clinton had almost all stable gasoline prices for his term around .108-1.26 depending where you lived. Right before an election they always try to stiff everybody and it briefly hit 1.89 close to elections. Boy what I wouldn't do for those days. High gas actually deteriorated the Country as I did not mow and take care of land nether did neighbors or many farmers when gas went out of this world. It's depressing as I enjoy working with tractors and mowers and I had my whole campground looking pretty good.

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