How Do We Determine Wellhead Price?

According to the U.S. Energy Information Association the wellhead price is "Price of natural gas calculated by dividing the total reported value at the wellhead by the total quantity produced as reported by the appropriate agencies of individual producing States and the U.S. Bureau of Ocean Energy Management."

That language seems to make it very clear that the wellhead price is a figure determined by a state or regional agency.  Our lease is based on the wellhead price, it says regardless of what the company sells it for.  On the MarcellusShale.org site it says the Wellhead price for Oct1024-Mar. 2015 was $2.80.  If that is the official wellhead price, and our lease is tied to the wellhead price (with no deductions) I assume that meas our royalties should be calculated on that price. Our lease also says if they sell the gas for a higher price, then our royalties are to be based on that (with no deductions)

If a company (like StatOil) uses a price which is half that price, they should be contacted by us to pay the difference.

Is that correct?

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Permalink Reply by Philip Thackray on June 16, 2015 at 11:50am

Table for my post on page #1.

Permalink Reply by K2 on June 16, 2015 at 1:02pm

We just received our very first royalty check yesterday for production in February on our property.  The price used to calculate our royalty was $2.01 per mcf which seems well below the $2.80 mentioned in this discussion. We are located in Belmont County Ohio.  What our others getting for a price of a mcf?  The royalty was then reduced by "deductions" which amounted to 15% of the royalty.  Is that common?

Permalink Reply by INVICTUS on June 16, 2015 at 1:08pm

Deductions are a function of your lease language AND your producer's interpretation and administration of that language.

Who wrote your lease?

Price depends on who bought your product, either and affiliated or a non-affiliated purchaser.

Is it a group lease?

Permalink Reply by Philip Thackray on June 16, 2015 at 2:07pm

K2

Like Invictus said.  My last gas price was $2.38 here in SW PA (XTO).  Up in NE PA prices are closer to $1.00.  VERY market dependent.

With a 15% deduction I'm guessing that you are in a dry gas area.  Long ago dry gas meant no deductions.

I'm in a wet gas area and with the low commodity prices deductions are about 40%.

Phil

Permalink Reply by K2 on June 16, 2015 at 3:41pm

Thanks Phillip.  Hopefully, someone else from Belmont County Ohio will reply and I can get a better idea of the local market.

Invictus, thanks for your reply as well.  Not sure of the language about deductions in our lease but I'll have our attorney take a look.

K2

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