Gas Royalty question - Cracker Plant

I am writing this thinking mostly about Pennsylvania and Shell. After reading that Shell may build a "cracker plant" in Pa. I thought about the consequences of them doing more than just retrieving and delivering natural gas to market. I realize leases vary a great degree but some leases address the issue of a company selling gas to itself. So if one leased with Company A and Company A sells the gas to Company B to do whatever with but Company A owns Company B this can be an issue addressed in the lease. I wonder how things would work if Shell has your lease but gas is delivered to a processing plant like the one they are proposing which they own and run. Do you receive royalties on the one sale to the plant - that being the end point of that market - or do people think the royalty will be based on some end result of the processing?

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Permalink Reply by N Bohl on March 16, 2012 at 4:16pm

Exactly. I'm not overly concerned that they would do that but I wonder if there have been any examples already in the Marcellus play where a company that leased the land sold the gas to a company it owned.

Permalink Reply by Clinton44 on March 16, 2012 at 4:29pm

We have a similar situation, Anadarko has a 50% partner in the drilling units that we are in. They pay that partner in gas, not dollars, that company in turn markets their share of the gas and distributes the royalties on that half  to us and actually there are times when their partner sells the gas at a higher price than Andarko is getting, which is a good thing!!. They also have a 16.25% partner whom Anadarko markets the gas for so Anadarko pays us the royalties on that 16.25%  

There are a lot of dealings that go on behind the scenes between these big companies it is all very interesting...

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