A relative of mine owns a share of the mineral rights for a property with a well on it in Long Beach. According to the CA Dept of Conservation, the well produced oil and gas on a routine basis for decades. Recent royalty checks from the operator only include oil royalties though. When I asked them about gas royalties, they told me the gas produced by the well is not sold. Is this a common or unlikely situation?
In some areas, the gas is flared and not sold. In other areas, the gas is reinjected to help with reservoir pressure. Ask the operator what they are doing with it.
They told me they were giving it to another company to be disposed. From 1977 to 2018, the well produced 200,000 McF of gas according to a CA gov website. Should I be concerned?
In Long Beach the operator could be disposing of the gas, without turning a profit, for a number of reasons. A lack of infrastructure, low quality, and/or regulatory constraints could cause it to be uneconomical to bring to market. Do you have more information you can share? For instance, who is the operator? What company is disposing of the gas?
Do you have a copy of the original lease? Given that it’s being produced in Long Beach, gas gathering (transporting gas from the well) could be difficult. Doubtful that the state of California would let them vent gas either. I’ve never heard of gas being “disposed of” by a third party. Without the option of flaring or venting, I can see the need to otherwise have it removed from the site - but it’s not something I am very familiar with. The lease will dictate whether or not you are owed a royalty for the gas. If the gas is “disposed” and the operator isn’t receiving any income from it, it may be difficult to pursue a claim for royalties - all dependent on the language in the lease.
Another rabbit hole to chase is severance taxes. Is the operator paying the state severance tax on the gas? If the gas is being sold - you can guarantee the state is getting severance tax on it. Im not familiar with California severance tax reporting, but in Texas we can view severance taxes online.
Another possibility is the gas is being injected in the reservoir to help with secondary recovery to keep the formation pressures up to allow for the production of the oil. Therefore, no gas sold. You should ask them again, what is happening to the produced gas.
When gas produced from a well is re-injected back into the well, are operators required to report the re-injected gas for tax purposes just like gas they sell? Is the re-injected gas exempt from tax reporting requirements?
Terry- Above my Oklahoma pay grade, but most of the time, it is not because it is not “sold” so no taxes to be paid. Call the operator back and ask what is happening to the gas that comes from the wellhead, be it produced formation gas or injected gas.
Thanks to all for your advice. I will suggest the owner contact the operator directly.