If your run check says the gross price received is $49.83 then that is what BHP got selling the oil at the wellhead. Assuming they are selling to a third party- that is what the third party is willing to pay for the crude grade at that given time based on their cost of getting it to market. If this is firm pipeline capacity then unlikely to see this much of a deduct. If this particular lease is not on pipe and BHP is forced to sell to a company who trucks the oil to a hub where they arbitrage the hub price on their side of the contract versus what they pay to buy it at the wellhead (minus transportation cost) then it is likely (with Reeves being very remote) to see a sizable deduction. A good portion of oil in reeves county is 46 degree or more gravity- this is closer to condensate and also receives a major deduction from WTI. At the end of the day, WTI or LLS or whatever hub is just a benchmark. Wellhead pricing can be very fragmented and situational.
This has nothing to do with you being a royalty owner and nothing to do with hedges. As a royalty owner you should get the same price BHP does at the wellhead (depending on the language in your lease regarding cost of course).
Hedging is a financial transaction that companies enter into separate from what is produced at the wellhead. Royalty owners do not cost/benefit from hedges as they are company level risks born by the operator. I suppose it is possible for a royalty owner to benefit from forward selling production at the wellhead but I am unaware of any instance of this.
I am very confused about royalties from what I am reading. Does the Texas State Permanent Endowment Fund also come out of oil leases of privately owned land? I was under the assumption that it only applies to state owned land.
Thank you for your clarificationi on this. I also have another question. I have been asuming that the higher the gravity of the oil meant that it was a higher quality light oil, and not a lesser priced product. Can you please explain the affect of oil gravity and how that might affect pricing?
It used to be that way but shale plays have glutted the American market with higher gravity oil. Refineries are not set up to handle the higher gravity oil at the volumes we now produce. It typically has be blended with low gravity, high sulphur grades (feedstock). Most of this grade comes from the middle east, venezuela, and canada. 2 out of 3 are in decline. Just the market responding to the changing supply dynamics I suppose.
I am still confused after reading the state charter of 1846, as it applies to the PUF tax. According to what I am reading, the tax only applies to land grants. here is what I read…
.“The Permanent University Fund was established in the Texas Constitution of 1876 through the appropriation of land grants previously given to The University of Texas at Austin plus 1 million acres. The land grants to the PUF were completed in 1883 with the contribution of an additional 1 million acres of land. Today, the PUF still own approximately 2.1 million acres of land located in 24 counties primarily in West Texas, but most of its assets are securities held by the fund.”
So what am I missing here?
THAT’s the reason I’ve been recommending to all the big operators they build crude oil and natural gas refining facilities (BIG ones!) all over west
Texas and SE New Mexico where the production is located…then pipeline the refined products across the USA, Canada, and Mexico to market…and to huge LNG loading facilities along the Gulf, Pacific, and Atlantic coasts for export worldwide. By so doing, they will eliminate outages from hurricanes. The rest of the world heats their homes, cooks their meals, and operate their power plants on LNG…liquified natural gas.
We have the most available LNG volumes in the world.
A radical idea: impose a .5 of 1% export tariff on exported oil and gas
products and a similar tariff on our imported oil and gas products…and
apply the WHOLE tariff revenues to paying off the National Debt. Let
the nations of the world help pay off our national debt. They helped run it
up requiring our policing of the world and giving them foreign aid. JMHO…ol’Lawrence in Verhalen, Reeves county, Tx.
Nancy…It was amended in the 1930s, 1940s, and as late as the 1970s
to add more and more Texas land for revenue. The UT system is THE
richest school system in the entire world. I understand they collect on
about 15 Million acres across Texas now. But… The state of Texas covers about 172,050,000 acres .
So do they collect PUF on ALL Texas oil land, or just the land that was granted or deeded to them? From what I can read and find out, as of December 2008 figures, the PUF still only holds 2,100,000 acres of land. And if Texas is 172,050,000, then there is ALOT of oil land outside of their holdings.
I have been doing some more research, and PLEASE feel free to correct me if I am missing something, but everything that I can investigate is that my original assumption is correct. PUF tax in only collected on the ORIGINAL 2,100,000 acres of state land deeded (or granted) to the Permanent University Fund. It is NOT applied to all Texas land.
