Question re how price at the wellhead is established. Given the whipsaw movement of WTI prices how does a mineral rights owner know what the going rate will be at any given time. Do oil companies contract with the refineries for a certain time frame or how does that work? Thanks for any info ~ Bill
Bill,
Yes. Operators will typically contract with a shipper to move their product from wellhead downstream to various markets. Typically, some operators will have some sort of firm transport – that is guaranteed space on a pipeline to move the product out of the basin. The net price then will typically be the spot price of WTI minus the cost of transport. Where the operator doesn’t have firm transportation rights on pipeline, they are typically playing a more spot market where they are looking for shippers to take their product. This can often lead to wide differentials between the WTI price and the net price you receive as a mineral owner. Over the last couple of months, the differential paid to mineral owners in the Bakken has widened a bit. Hope this helps.
Thanks much for your time and info~
Anytime. Let me know if you have any other questions. The differential piece is very operator and area specific. Unfortunately, Williams likely enjoys the widest differential to WTI of the four main counties.