My family and I I own mineral rights in Reeves Co. First checks were received in November for four wells in the Hollywood Unit. Since the , it has been going rapidly downhill. Oil checks for the four have been averaging $1800 a month and gas checks were in the $200 range. We have continually asked for an idea as to what deductions are made and for what purpose. Transportation? Permits? Drilling? Between a cousin and I, we have probably asked not fewer than five times and have never received an answer. Today I got a gas check for all four wells for $59! That won’t even cover a tank of gas for my car!!
To make me even angrier, Concho kept $102. So total was $164.
Do oil companies have the right to not disclose this information?
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There are several factors which are affecting your royalties. First, horizontal wells have very steep production declines in the first two years, often 50% from one year to the next. Second, gas prices have been declining due to increased volumes and too little pipeline space. Companies have to fight to get the gas transported to the plants. The gas is processed to remove liquids such as propane, butane, ethane, which are sold separately from the remaining “dry” gas. Many companies are netting almost zero for the dry gas and revenues are mostly for the products. This situation will improve when the new pipelines come on-line next year. Third, unless your lease details how the gas royalties are to be paid with language that effectively prohibits deductions for post-production costs, then you will be charged for transportation, processing, gathering and marketing costs which the operator is incurring. You are not charged for pre-production costs such as drilling and permits. With the low gas prices, these costs are a huge percentage of the revenues. Most companies have some notation on the check stub as to what the costs are and some separately deduct transportation and processing.
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This oil and gas business is chicken one day and feathers the next. The first checks usually are for more than one months production. They don’t pay until all the paperwork is done. Then production drops off. If they cannot transport the product or sell it for a profit, it is pointless to pump it. Remember, those minerals are yours, you want them to come out of the ground when the price is high.
Don’t go crazy and spend a lot of money when you get your checks. Invest it. Build up your assets while you can. You never know when things will go south.
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