Division Orders and interest decimal verification

Can someone help me understand this email chain and question. Please don't laugh when you read that I Burden CHK.  I can't get a staight answer. 

 

From: Revenue Inquiry [mailto:revinquiry@chk.com]
Sent: Thursday, February 27, 2014 11:59 AM
To: 'Mike Antrim'
Subject: RE: Revenue Check question

 

Mike,

 

As a royalty owner in this well, you burden Chesapeake, Larchmont Resources LLC, Stat Oil, Anadarko and Mitsui E&P USA LLC . Stat Oil, Anadarko and Mitsui  are taking their gas in kind, which means they are not marketing with Chesapeake. So they are in charge of paying you on their portion of the gas. You will need to contact them for payments, if not received already.


We are just paying Chesapeake and Larchmont’s piece which is .00425851. If you take this portion .00425851 divided by the inflation factor .38402798 you will receive the payment decimal .01108906. We have to inflate the payment decimal since not everyone is marketing with Chesapeake, we are not in a 100% joint operating arrangement. We do this to insure everyone receives their proportionate share of the volumes produced.

 

Please let us know if you have any more questions.

 

Thank you,

Revenue Team

 

Attached is my Division order. 

 

I have called 3 days in a row.  Place on hold for over hour and no one picks up.  This is completely unacceptable………………… 

 

I need someone to call me. 

 

The first royalty check the payment decimal was exactly what was on the Division order.  The Acres matched.  See attached Division order  ACRES 535.936466  BPO net Acre 50.495298  APO unit int

.01177735

 

I have looked thru my records and 11-2010 the payment decimal dropped to .01108906 and my recent check has acres at 536.665434.

 

Anadarko and Statoil have never changed the entire time. owner decimal interest is .01177735

 

I need someone to contact me to discuss this

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Replies to This Discussion

Permalink Reply by Todd on February 28, 2014 at 7:14pm

MICHAEL,

Congratulations!  You BURDEN CHK!  That's AWESOME!

On a serious note, what the heck are they talking about - an inflation factor??  You would think that an inflation factor would increase your payment amount, not decrease it!

Permalink Reply by Barbara on March 1, 2014 at 12:37pm

I agree...CHK told me the same thing and you can go around and around with them but it makes no sense,  They claim they are factoring in "inflation" by "decreasing" the amount paid.  One way or the other they just want to take as much as they can get away with.

One other thing,  seems like every well in our area that is operated by CHK is a low producer.  However, the other wells that fall under Chief and SWN in the same area are off the charts....I don't know it just seems like CHK is intentionally keeping gas flow down.  Just saying. 

Permalink Reply by John Harrison on March 1, 2014 at 3:44am

This is an example of Chesapeake making a simple calculation complicated and they are doing that for only one reason - to pay you less.  The owner decimal interest is easy to calculate and based on numbers the landowner knows or can find out at the county courthouse.

Owner Decimal Interest =  Lease Acreage / Production Unit Acreage  multiplied by Royalty Fraction

In this case:    50.495298 / 536.665434  times  .125  =  0.01117613542

The only way this number changes is when the gas company amends the unit size, you sell some land or your lease changes.

The way it is supposed to work is that the gas companies total the money they got selling the gas from the well(s) in your unit for the month, multiply that times your owner decimal interest ( or burden as they see it) and send you a check.

The fact that Chesapeake, Larchmont (Aubrey McClendon), Statoil, Anadarko and Mitsui are taking a share of the gas and selling it separately makes for a perfect opportunity to cheat the landowner.  This has caused the Governor and Senator Yaw to contact the Attorney General of Pennsylvania.  It is pure politics and nothing will come of it, but it could be a perfect opportunity to fix the problem.  All the AG has to do is gather the states best gas and oil auditors and task them to audit every well Chesapeake has drilled for all the months of production.  This audit would only have to go back 5 years and it would accomplish several things.

  We would know if the numbers Chesapeake reports to the DEP every 6 months are accurate.  We would know if the allegations that Chesapeake is cheating landowners are true or not.  And best of all, the audit would never have to be done again because the mere threat of a statewide audit would keep even the Chesapeakes in line.

Permalink Reply by Kathleen on March 1, 2014 at 3:51am
The federal government audited the gas and oil co's., that drill on federal land. After all these fancy, high priced auditors, looked and looked at the deductions they reported back they couldn't figure it out.
The formula the gas/oil companies use is too complicated and these auditors feel it is being done on purpose.
Since this happened, nothing changed, so I do not see a change coming for local mineral owners either.
Permalink Reply by wyalusing jim on March 1, 2014 at 7:11am

"In this case:    50.495298 / 536.665434  times  .125  =  0.01117613542

The only way this number changes is when the gas company amends the unit size, you sell some land or your lease changes."

well yeah, that's true, but 4 individual companies cannot all pay you based on that number.

what you missed there is that there is another decimal that enters into the calculation of your payment decimal, the fraction that each company sells of the months production.

if the 4 companies each sold 1/4 of the production in a given month, then your ownership interest would need to be multiplied by .25 to calculate your payment decimal for that month.

the percentage that each company takes from a months production varies from month to month, and so that is why the payment decimal varies.

wj

Permalink Reply by John Harrison on March 1, 2014 at 7:35am

The owner decimal interest is the landowners share of the all the gas pumped from a given unit, period.  It is documented in a recorded document at the county courthouse as well as the division order.  Once a landowner accepts a royalty check calculated using a different number they have given up the one true number on their royalty statement.  Now all the numbers on the royalty statement are magical meaning that they will change every month with no way to verify.

How hard is it to list the sale volume and  the sale price on the royalty statement?  If the sale volume is less than the production volume of the unit then both numbers should be stated on the royalty stub.

Permalink Reply by wyalusing jim on March 1, 2014 at 10:58am

john, I cant remember how many times i've said this, but all anyone needs to do, is multiply the gross revenue of the unit times their division of interest decimal, and compare that to the total of all checks received. they should be very close, and in fact most that I've seen, the checks are a little higher.

if you have deductions then of course they will have to be calculated in before comparing the check totals.

this isn't rocket science, it's just simple arithmetic. complicated though it may seem, if you think about it, it all makes sense, even the way that the industry makes it seem a little tougher to a new mineral owner. it's just their way of doing things.

wj

Permalink Reply by John Harrison on March 2, 2014 at 4:02am

OK, maybe I missed something, how do you get the gross revenue of the unit? Is this a publicly available number or are you talking about an audit?

Permalink Reply by Boomer on September 9, 2014 at 11:41am

WJ,  I am not sure if you receive royalties, but if you look at payment stubs, each company shows as "volume" the amount of gas they market for the month.  Multiply that by the price and you get a net value of the gas (their share) that company marketed.  That amount is multiplied by your decimal.  SO, yes in the above example so each company WOULD pay based on the same decimal (your share) amount.  If each company showed the total amount of gas for the well, then you would be correct, the adjusted decimals would add up to your decimal number.

What Chesapeake and others are doing is showing ONLY their marketed amount of gas from the well for the month AND adjusting their payment decimal to reflect their interest.  So when you add up all the payments, the gas companies are effectively paying only 50% of what the lease requires.  The best offensive move is to create a diversion.

Stay tuned if you want to see some real fireworks!

Permalink Reply by INVICTUS on March 1, 2014 at 4:30am

I damn well expect to audit my royalties and am adamant on understanding exactly how this process works. This is one benefit of being a pad owner. Maybe the only real one benefit.

Technicians/geologists/scientists/engineers...anyone with this knowledge...Please come to the Landowner/Leaseholder's aid quickly!

I've seen and studies some great technical discussions hinting at how to measure, record, and track these gasses/liquids coming out of our wells.

Nuts!, I got so doggone excited this morning reading this discussion thread, I just spilled coffee all over the  floor!                         Bad way to start a Saturday.

Well, that won't be half as excitable as we all get when the DPU and Division orders, followed by inaccurate royalty checks begin to grace this Leaseholder's mailbox.

Well, time to take some more heart medicine.  breathe sllowwwwly   

Permalink Reply by Boomer on September 9, 2014 at 11:31am

I just had a meeting with Chesapeake this morning.  Pool is divided by Epsilon, Chesapeake, Stat Oil.  Each company payment stub shows their interest in the well as far as what their volume (%) is that they market for the month.  They then adjust the payment decimal by what their interest (%) in the well is.  Chesapeake claims that if you add up all the adjusted decimals it would come out to what the division order shows (this is what chk refers to as title interest).  If each company showed the total production of the well for the month and adjusted their payment decimal to reflect their interest then I would agree with their math.  But what they do is divide twice!  If they are doing it to me they are doing it to everyone!

Permalink Reply by Todd on March 1, 2014 at 7:41am
Invictus,
Is it written in your lease that you can audit?
I'm just wondering since it's not in my lease - whether I would be able to conduct an audit.
Thanks,
Todd

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