Just curious if anyone had an explanation why the price they are paying on our lease would go from $2.65 mcf last month to $1.36 mcf this month? I know the price has gone down but looking at a graph for wellhead price for the last 6 months I don’t see a major drop. Am I missing something or could there be another explanation? I have been trying to call the operator but no answer just a recording. The last 6 months has been from $3.85 mcf to $2.65 mcf last month. Thanks
You need to provide specific information. Where are your wells located - county and state? What is the production month? Is the dry gas being paid separately from the liquids or is this the wet gas (gas plus liquids) paid combined? Many operators in the Permian found that dry gas price was negative in April. Overall, the liquids have dropped 50% over the last year. Also, your operator may have had a long-term contract price and now has a new contract with a lower price. Lots of variables.
Johnson county Texas Major price drop in May now June royalty Check. The royalty check is for gas and condensate. The production has not changed much in the last year, but price per Mcf dropped more than half .
Why would an operator agree to a contract @ $1.00 per Mcf?
I know the price is down but other royalty owners in the area are currently getting $2.30 to $2.50 per Mcf.
Several possible factors.
First, operators have contracts for gas sales. most contracts are annually renewed, although the contracts can be longer or shorter. As gas prices drop, the operator is still paid on its contract price. However, these days, the new contract will be based on the renewal, lower price. At that point, the operator and royalty owners will all get reduced revenues.
Second, as the transmission lines and gas plants are overwhelmed with gas, they have instituted minimum processing charges and higher transportation charges. Some plants are taking set gas volumes in whole rather than a percentage of the lower sales. This keeps the gas plant making its money, but less is available to the operator. Smaller wells can go negative with gas sales.
Third, when comparing gas prices on one well with another well, keep in mind that some operators report gas and liquid products sales separately and others consolidate gas and products into a single sales number. You need to add the gas and liquids sales together and then divide by the total gas volumes to get to the effective price. Do not include the condensate as that is essentially oil and paid at an oil price.
Last, your oil and gas lease may allow costs to be deducted and as the costs rise and gas prices drop, the net effect is really a hit.
Thanks for the reply