Question: New York Times shows natural gas prices nationally at around $8.45+/- but my royalties from, e.g., XTO and Gulfport Midcon lately have reflected prices of around $4.50+. Why the discrepancy? Is it because well head prices don’t reflect transportation, compression, or stripping processes so that the NYTimes price is for commercial and residential,use?
Natural gas is on a two-month delay, so, the prices you see today, you may not see on your remittance advice for two months. It is my understanding that natural gas is bought on a contract, and will be purchased at the price gas was on the day the contract was executed or the gas was sold. Natural gas prices on my remittance advices have been all over the place lately. I have some showing in the $4.00 range and some showing in the $2.00 range. I have also found that they will call it natural gas on the remittance advice if it is condensate or a mixture of gases. Also, it also depends on the BTU’s (how they calculate that, I am not sure) the higher the BTU, the higher the price you can get for the gas.
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Chances are the check you received in May 2022 was for production in March 2022. Natural gas prices in March averaged in the high 4s. I’d guess that is the main reason.
The bad news: oil companies don’t pay you instantaneously. The good news: the check you receive in August is probably going to pay you a lot more per mcf.
Your oil company may be receiving the price due under a contract with a pipeline company. Once the contract resets or is renegotiated the price may increase. Also, prices vary across the country and the newspaper is probably not quoting from the price at the gas hub near your wells.
They calculate the BTUs from a gas sample. Use gas chromatography (as far as I know) to tell how much of it is methane, ethane, propane, butane, non-combustible, etc. The longer the carbon chain of a component, the higher the BTU. You take the % of each component, times its BTU…sum it up, that’s the BTU of the gas.
Normally they will pay you on your gas post-plant (i.e. residue) when it is mostly methane (around 1000 BTU) and pay you on a liquids basis for the heavier NGLs that have been stripped out at the plant. The higher BTU your gas has going into the plant, the more NGLs it will make.
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My May royalty check paid me for March, residue gas price $3.99 for March. Wall Street Journal gas price was $6.50 average in March (I assume Henry Hub prices).
I read some time back that our local Waha price is approx 10% below Henry Hub price, due to remote location. Waha takeaway capacity may have been tight at that time.
Some leases allow operator to deduct costs of gas processing, gathering, compression, treating etc. I read once post production costs can reduce a 25% royalty to 23.5% or 24%. We made sure our lease explicitly shall not charge us such post production expenses.
I won’t pretend to fully understand gas contracts and trading and I don’t know what the WSJ is quoting , but average Henry Hub for March 2022 was $4.90. Source EIA. See below. Yes, Waha should be a bit lower than that. Heck in 2019 Waha was negative, but they’ve added a lot of takeaway since then.
If your gas is going to Waha, chances are you have an oil well making some gas. If your gas is going to Gulfport you probably have a gas well making some oil. Gas pricing a bit more important in the latter. But every bit helps and natural gas has doubled since the start of the year. Thank your uncle Vlad for that. Should be reflected in future checks.
Hey Roy,
Quick question - Are your minerals in TX/NM/OK area or in PA or Ohio?
It’s my experience that differences like this are too large if your minerals aren’t in PA or OH. Give me a shout if you want help “Peeling back the Onion” on this.
Scott
Thanks ScottBrinkman. I misquoted the WSJ gas prices for March, I carelessly quoted the moving average price WSJ likes to show.
I need to ask my operator why they pay us two different Residue Gas prices every month. Operator paid us June ResGas prices of $6.98 and $8.19 (weighted avg $7.31). According to Wall Street Journal, June Nymex gas averaged $7.60 for 21 June trading days. June gas started at $8.70, rose quickly to $9.29, then slid three weeks to end the month at $5.39.
Our minerals are located in north Reeves County TX.
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