Oil Price vs Gas Price on Royalty Statements

Given the amount of discussion there has been recently on the amount people are receiving in their royalty payments i was wondering how people who are getting paid royalties for oil compare to those getting royalties for natural gas.

Seems as though natural gas companies are paying out at about $1.50 per mmbtu (plus or minus $0.50) when the Henry hub price has been between 2.45 and 2.65 for a good while now.  

I don't think any mineral rights owners think that it is reasonable to be getting paid based on 60% of the market value of the product, but i don't really have a basis for what the royalty price should be based on or what it has been based on in the past.  Has it been this way since they first started drilling in the marcellus area (pa for me) 8 or so years ago?  When prices were high were people still only getting paid 60% of the index prices?  Is this a new practice in which the gas companies are just selling to a sister company at a reduced price or has it always been this way?

As a comparison i was wondering if anyone getting royalty payments on oil has seen the same issue in which they are getting paid well below the index prices for oil, or if the payments have always been based on a price below index prices.

For future considerations when leasing could it be written in to a lease that the payments would be based on Henry hub prices to ensure you are getting full market value for your resources?  Or would that just get thrown out as unreasonable by the gas companies?

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Permalink Reply by Jason Cooper on October 16, 2015 at 9:12am

Here's a chart showing ballpark prices in different regions across the U.S.  We are dealing with a glut in our region, so the prices suck.   Plain and simple. 

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on October 17, 2015 at 2:37am

James,

     One item that doesn't show up on the Buck Well 1H XL spreadsheet is the deduction from the "bogus royalty" for oil and gas for Processing a large volume of NGLs, that don't appear to be from our well.

There is always a large volume of NGLs processed such that it cancels out the NGL "bogus royalty", then goes on to reduce the Oil & Gas "bogus royalty".

That's why I like to say, "How Do They Steal From Thee? Let Me Count The Ways!"

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on October 17, 2015 at 2:39am

James,

     One item that doesn't show up on the Buck Well 1H XL spreadsheet is the deduction from the "bogus royalty" for oil and gas for Processing a large volume of NGLs, that don't appear to be from our well.

There is always a large volume of NGLs processed such that it cancels out the NGL "bogus royalty", then goes on to reduce the Oil & Gas "bogus royalty".

That's why I like to say, "How Do They Steal From Thee? Let Me Count The Ways!"

Permalink Reply by RAY RATELL on October 19, 2015 at 3:51am

land owners should get unlimited gas usage from a well on there property. there should be no limits. most the time companies give you 300.000 to 500.000 cf of free gas. make sure you put in the contract that what you do not use is carry over to next yr. in other words if you only use 200,000 and you get 300,000 free a year then next yr you get 400,000 to use. and every yr after the same would apply to the carry over. now you could have the company pay for the gas from you after it hits 1 million and get a check for lets say 1500.00 to upwards of 4000.00. I think every one would like that, but if you do not have it in your contract you are giving the gas company that money.

next: property owners should never be restricted gas from a well on there property for gas usage for any type of dwelling business or house or building of any kind.

lessors should have to send a copy of the check that the lessor is getting paid from. do you trust a gas company? I sure do not.

lessors should have to send a copy of the chart they get paid from, I have a gas well on my property and they said I used more than my 300,000 cf in one year but never got a statement of what I used ever for 20 yrs and all of  a sudden when gas prices drop off the charts they want my gas???? I looked at the chart and they are producing the well above the last chart line, this is giving gas a way for free. the machines can not read above the last chart line. so check you well and see if you company is ripping you off also?

with out a copy of the check and the chart gas companies can pay you anything, they get rich and you get crap. typical gas company.

next gas companies should show a profit and lose statement on each well, theses 30 yr old wells are all most dead and they are still running them just to keep the land lease. they are pulling the wells into water or nothing at all and ruining them for the land owners free gas. I say if a well can not make a profit of 30% above operating or produce over 2 million cubic feet of gas a year, they should be turned back to the owner of the land for house gas.

make sure you put in the lease if the well is shut down that they must still pay tha average amount of production for 6 months, if they do not come back on line then they would lose the well. this is a reasonable amount of time to repair any well.

the gas companies should also give the land owner a copy of the insurance on the well. if you have a well close to your house and the gas companies well blows up or catches on fire and burns your house down, you have no coverage from the oil company. oil and gas companies must carry 5 to 6 million in insurance on wells. lets say your tractor run by a well and the well blew up and killed you would your family like that with no insurance on that well? ( land owners should see this insurance and it should be named to the land owners not the state they are in.) they must have insurance but it is for reclaiming the well only.

I hope I get some comments on this, and I hope you write call, e-mail, bug do something with your governors to make these laws on gas companies.

the property owners are not getting rich from oil and gas like the companies are and the states are not getting money from them to keep an eye on them, and the oil and gas companies are stealing from the land owner and the state, the state should have more controls on oil and gas companies like texas does. in texas the oil and gas companies pay all property taxes on the ground they use. and it should be the same in all states. your local firer department should take control and check the wells in your area. if they are not then you should call them and ask why they are not doing this?

waiting some comments

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