Deductions

I have a gas well in Bradford Co. Pa that was been brought on line last October. I received my first royalty check in Feb. The check stub shows deductions for gathering. My lease states no deductions for gathering , there is a clause for enhancement. I contacted CHK , and was told that gathering was "enhancing" the value of the gas. They told me they can't sell gas at the well head and sending it down the line "enhanced' the value. I don't agree, it seems to me that gathering lines are part of production not enhancement. It looks like they are taking 20%.  Has anyone seen this and is there anything that can be done about it. Thank's Keith.

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Permalink Reply by wyalusing jim on April 22, 2013 at 2:45pm

no tico, what i said is that the deductions remain the same since they are fixed costs per mcf.

then...since the deductions remain the same, as prices increase, the deductions as a percentage of your royalties will decrease.

wj

Permalink Reply by Frank Volz on April 23, 2013 at 4:00am

jim, the deductions on my checks have risen with each check. The unit rate seems to have no effect on the gathering fees. They keep going up both as a percentage and real cost. The latest  check is 54%, they started out as 30% +/- to 40% to 54%.

So I haven't seen your theory.

Permalink Reply by wyalusing jim on April 23, 2013 at 4:46am

it's not a theory frank.

gathering and transportation fees are charged per mcf, regardless of the unit price upon which your royalties are based.

if your volume is remaining the same month over month, but your gathering and/or transportation deductions are rising, you need to find out why.

if your gas is wet though, there may be something else going on that i'm not familiar with, i am in the dry gas area of pa, so what i posted was in reference to fees for transporting dry gas, not processing wet gas.

going beyond fees for transporting gas, it gets a bit more complicated. the fuel used for dehydration and compression will go up in price the same as the gas that you are paid for, but that is not necessarily the major portion of your deductions.

and from time to time transportation fees may rise too if the owners of the pipeline raise them. but those raises do not occur on a monthly basis.

wj

 

Permalink Reply by melissa humphrey on April 23, 2013 at 9:59am

Liars. In PA an Implied Covenant - a lessee is expected to market the gas, period.

Gas at the wellhead is NOT, marketable, it HAS to be transported to a point where it is marketable in Bradford, like a pool point on the TGPipeline.

Keep you eyes open, this issue is very soon to hit the corporate fan and blow out.

Permalink Reply by wyalusing jim on April 23, 2013 at 10:17am

hump, if you have the caselaw for that pa covenant, i wish you would post it.

wj

Permalink Reply by GBrewer on April 23, 2013 at 10:56am

Found this after two minutes on Google.  Not necessarily directly on point, but right church, right pew and heading to the seat.

 

https://docs.google.com/viewer?a=v&q=cache:zhYQhZzqNvQJ:www.eml...

Permalink Reply by wyalusing jim on April 23, 2013 at 12:07pm

yeah, there's alotta reading to do on that one.

thanks.

wj

Permalink Reply by Frank Walker on April 28, 2013 at 7:51am

Melissa, respectfully, it is possible to sell, or market, gas at the wellhead.  This is not done, however, today.  But there is no prohibition from doing this save for long-standing industry practice.

Regarding landowners (Lessors), some leases contain protection for Lessors should wellhead sales ever commence.  Others do not.

Permalink Reply by Frank Walker on April 28, 2013 at 10:15am

Fred, here's the thing:

First, as you state, industry practice today does not include any sort or nature of wellhead sale.  And things have been this was for God only knows how long.

But second and equally important, this is industry practice; it is not law.  I hesitate a bit to lay out for you how wellhead sales could be accomplished, and why a gas company would wish to do this.  Without giving away too much I hope, it would be done using contracts.

But, again, I agree with you this is NOT happening today.  And, indeed, to my knowledge it never has happened.

Finally, nothing I'm writing about here has anything to do with workback or netback pricing schemes or approaches.  The scheme I have in mind, were it ever to go into effect, would be entirely new to the industry.  

Permalink Reply by Ron Somogy on April 29, 2013 at 4:33am

I am in a unit that has several companies holding leases. My lease is with Chief but the well is Chesepeake. I get checks from three companies, Chesepeake, Chief and Enerplus. Initially all three took deductions. When I brought this to their attention, only Chief stopped taking deductions and refunded the past deductions. Chesepeake seems notorious for doing this.

I think the attorney general's office should take a look at this. It's not an oversight or disagreement; it's theft!

I have seen alot of folks quote a percent when talking about deductions. That is a function of the gas price. Deductions should be a fixed cost since it takes the same cost to process $2.00 gas as it does $4.00 gas. (I think) Ron Somogy Troy PA

Permalink Reply by ned batch on May 1, 2013 at 2:06am

play chk's game! on scheduleE form 1040 line4 claim gross and list deductions paid by gas co. on line 19 .This leaves chk to hash it out with the irs. if deduction is denied amend line 4 to royalties actually received.    Worst case, you have built an evidence trail for your case against chk.     eeb bradford ,cty..

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