I’ve gotten the Gas Production Division report from Kracken Oil for April, May and June, Every month they report that the Processing Fees and Production tax is greater than the revenue. This was not the case in 2018; though not a huge amount there was positive revenue in most months. Their reports of production balance with reports from ND Oil & Gas, and total almost 100,000 mcf for the period. Does this seem reasonable? How do I insure that I am being properly compensated for my royalty?
Morning. Unfortunately, gas and processing costs operators pass down to mineral owners in ND is somewhat of a blackhole. The severance tax is what it is, so not much to really analyze there. However, in our experience, some operators will take the processing fees that would otherwise apply to natural gas liquids (NGLs) and lump it into the gas statement on the revenue check. The result is that you may end up with some negatives on the gas, but are getting paid on your NGLs without processing deductions.
The other reality is that there is some very unfavorable case law in ND (Bice v. Petro-Hunt) where the operators can really stick it to the mineral owners with respect to gas processing costs since the “wellhead” price is really what it means after processing and transportation. The result is a gigantic black hole without much guidance or understanding on what you are truly entitled to. We typically don’t ascribe much value to the gas (unless it has a real liquids content) and focus on the oil production and net backs from there.