a little math problem

i've been kicking this one around for a while and havent been able to decide definitively what the answer is, so if anyone wants to add their thoughts i'd appreciate it.

this involves the difference between mcf's and mmbtu's and how they are accounted and paid for to royalty owners.

lets say your lease says that you are to be paid by the mmbtu.

lets assume that the price on your royalty stub is the correct weighted average mmbtu price for the month.

as anyone who has seen a royalty stub knows, the well is reported in mcf's...volume.

the problem that im trying to understand is, why are you being paid the mmbtu price X the volume?

isnt that being paid the price of apples for your oranges?

the way im figuring this is, good, your being paid the correct price, but for the wrong volume.

since gas here in nepa contains roughly 1030 btu's per cf, an mcf contains 1.03 mmbtu's.

in order to calculate royalties on an mmbtu basis, shouldnt the calculation be, price per mmbtu times the volume times 1.03?

where am i going wrong here, or why arent we being paid that way?

wj

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Permalink Reply by Trapper on April 7, 2013 at 3:50am

Makes sense to me that if your selling 1030btu gas by volume (price per 1000 btu) , then you should be getting 3% more $ on the volume (price per 1000 btu) price. Who's to say someone downstream isn't stripping the 3% ethane to re-sell at a nice profit . What is the btu +/- tolerance for 1000btu gas? I know there is a btu limit for gas in pipelines.

Permalink Reply by Joseph-Ohio on April 7, 2013 at 9:20am

Seems to me:

It's not whether it is right or wrong.

It's not whether it is truth or untruth.

It's what can be proven and ultimately is proven.

Also, it normally costs alot of money to prove anything.

And not being made of money - there has been many a time during my years on this earth that I made a conscious decision to settle for the story told by those whom I've doubted; sparing myself the expense.

Permalink Reply by wyalusing jim on April 7, 2013 at 10:30am

joe.

i know alot of folks tend to think that problems are difficult to resolve with these gas companies, but i am here to tell all, that i have not found it to be so.

true life example. on thursday i made a call to a gasco which pays me royalties, to inquire about some things which i did not understand. i was doing a little preliminary investigation leading up to possibly confronting them about a possible underpayment situation. i did not accuse them of anything and did not tell them why i was asking. it was sortof a fishing expedition.

i received an email from them a day later stating that upon review of my lease, they were assuming that the reason i was pursuing my line of questioning was contained on page 48 of my lease. they then apologized and said that i would be receiving a "make up" check for underpayment due to their not having met the terms of my lease. they also thanked me for bringing this situation to their attention and added that they had created a new payment calculation to their database for leases like mine.

so...without spending a penny, and only asking a simple question, the company is resolving an issue of its' own volition. no hassles.

this is typical of my experiences with gas companies so far.

wj

Permalink Reply by Joseph-Ohio on April 7, 2013 at 11:01am
That's a refreshing post to read.
If something similar happens to us I hope we're treated the same way.
Permalink Reply by Tony Yurina on April 7, 2013 at 2:43pm

The metered gas vapor volume in MCF   x the BTU per cubic foot = total energy measurement.

The gas industry standard is 1,000,000 BTU's,  equal to 1MCF X 1,000 BTU / cu. ft. 

1,000 C.C. x 1,030 BTU/Cu.Ft. = 1,030,000 BTU's of energy or = 1.03 Dekatherm

Stated another way, this 1,030 BTU heating value is 30 BTU higher than the industry 1,000 BTU standard.  Stated another way, you receive the additional 3% value for the energy above the industry standard unit energy measurement.

The gas BTU heating value is determined by field gas sampling, if the proper sampling procedures are followed, the gas sample will be representative of the well being tested. The gas sample cylinder is shipped or taken to a (hopefully) certified gas analytical laboratory and another strict GPA procedure is followed to analyze the gas with a chromatograph, this device is capable of being highly accurate if all calibration and standard procedures are followed. The results will be accurate for any given gas sample.

Any one single hiccup in field sampling technique, mix up of sample cylinders in transport, industry lab procedures not being followed, mix up's in reporting analytical results for the correct well/meter station, an error is possible.

Liquid sampling and analyzing is a completely separate set of procedures dedicated to the NGL liquids volume separated and collected aside from the gas vapor measurement.   Bear in mind, the liquid mixture, pentanes, Hexances, Heptanes, Octane, etc. have direct bearing on the energy value of each well's produced liquids and total royalty paid.

PM me and I can provide a highly acclaimed national laboratory, in SE Ohio.  A C6+ composition BTU sample costs $50 delivered to that lab.  I do not work for them.

There a a number of cheaper lab services avaliable, but being in this industry for 35 years, I can tell you,  you get what you pay for.  1 BTU error for each single cubic foot equates to a lot of money.    A 5 BTU error is a ton of money error for a large volume measurement facility. 

 

Permalink Reply by Jack Straw on April 7, 2013 at 3:56pm

Thank you Tony.

Nice to hear from an obvious expert.

And kind of you to share that expertise.

 

JS

Permalink Reply by wyalusing jim on April 8, 2013 at 1:32am

Reply by Tony Yurina

"The metered gas vapor volume in MCF   x the BTU per cubic foot = total energy measurement." (per mcf)

agreed.

"The gas industry standard is 1,000,000 BTU's,  equal to 1MCF X 1,000 BTU / cu. ft."

agreed.

"1,000 C.C. x 1,030 BTU/Cu.Ft. = 1,030,000 BTU's of energy or = 1.03 Dekatherm"

what is a "C.C."?

"Stated another way, this 1,030 BTU heating value is 30 BTU higher than the industry 1,000 BTU standard."

agreed, that is the premise of this thread.

"Stated another way, you receive the additional 3% value for the energy above the industry standard unit energy measurement."

are you stating that i already do receive the 3% additional? if so, how is it accounted for in the royalty statement?

it could be that the price stated is actually for an mcf of gas at 1030 btu's, that would make it accurate, but the problem i see is that the price would then have to be 3% higher than the  mmbtu price and it doesnt appear that that is the case.

i have no issues with gas sampling methods or accuracy. i already know that the measurements are very close, though it is curious that quite often there is a 1 btu difference between the reports of the several companies that pay me royalties on the same gas, from the same well in the same month.

wj

Permalink Reply by Tony Yurina on April 8, 2013 at 3:35pm

Jim,

I was hurrying last night.

The C.C. is a typo.  The correct abbreviation is C.F. = cubic feet.

1,000 cubic feet (or C.F.) = 1MCF

Your early post is spot on, multiply your volume by the 1.03 to obtain the energy corrected volume, assuming both values are provided to you on your royalty statement.

You do need to be certain you are being compensated for the total energy value in each cubic foot of gas from your well(s).

I don't have your royalty statement to review, therefore I cannot comment specifically to help you.

Either the data to perform the energy calculation is available on your statement or it is not. 

If not, I presume the energy summation is calculated by the Production company and they would only be reporting total energy in an MCF equivalent. 

If this is the case, the 1,000 cubic feet at 1,030 Btu / cubic foot could be reported at  1.03 MCF using the industry standard.  (1,000,000 BTU = 1 DTH)  Possibly not reporting in DTH units, but MCF with the energy correction included or added.

If they add 30 cubic feet for every 1,000 or 1MCF, that would be equal compensation for the extra 30 BTU's in each cubic foot. 

You likely have one or the other methods in play. 

You may have to contact your production company to determine what calculation routine they use to totalize your royalty.

I hope this helps.

   

 

Permalink Reply by wyalusing jim on April 9, 2013 at 2:59am

Reply by Tony Yurina

"Your early post is spot on, multiply your volume by the 1.03 to obtain the energy corrected volume, assuming both values are provided to you on your royalty statement.

You do need to be certain you are being compensated for the total energy value in each cubic foot of gas from your well(s).

I don't have your royalty statement to review, therefore I cannot comment specifically to help you."

ok, thanks tony. i wasnt looking for help with the energy companies, i just wanted to check my math and my thinking on this before i started inquiries with my lesses.

on my royalty statements the price, volume and btu content are all listed. with minor differences, all of the mineral owners in my unit are being paid based on the same numbers. it could be that everyone, regardless of their lease terms, are being paid based on mmbtu's. thats what i am trying to sort out.

wj

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