I have a small 1.07 acre mineral rights lease in Coal County, OK. By doing the calculations my decimal share is 0.00031389 The current operator of the wells keeps applying 0.00030336 to part of the production and 00001054 to another portion of the production. The smaller decimal is applied to a much larger production figure, I have exchanged emails with them several times and seem to be making some headway. But they just stymied me with saying another entity is taking their gas in kind. I think I almost understand the concept…lol. However shouldn’t I be getting the 0.00031389 applied to the entire production of the well?
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Sometimes when one WI takes in kind, the operator is no longer selling all of production. Some operators will inflate its share of volumes and sales to be 100% of production and apply your full DOI and royalty owners do not see anything. Other operators will divide the royalty payment into two parts - one being operator’s sales and the other being the taking-in-kind WI share. There are varying mathematical ways to do this. The two decimals add to your full DOI. So it may be that the operator is selling 96.642% (being 0.00030336 / 0.00031390) and the WI is selling its 3.358% (being 0.00001054/0.00031390). The operator reports its own 96.642% sales and applies 0.00030336 DOI (96.642% of total DOI). That leaves you underpaid as you are not paid on 100% of DOI and 100% of production and not paid on your full DOI. It cannot just apply the 0.00001054 to the missing volumes and sales or you will still be underpaid. So the operator inflates (increased) the volumes and sales so that you come out even. You can try to verify by adding your two net volumes together and then divide that sum by your full DOI and see what total volume you are being paid on.
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Sorry but that second paragraph was meant to be two columns of figures…
Your post is only one paragraph so I have not seen and columns. I am responding from personal experience with data which has to be analyzed to determine what is going on. Similar things happen where a decimal is calculated on a higher tract basic, rather than a lower unit basis, and an operator adjusts (reduces) the volumes to also be on a tract allocation basis to make sure that the net royalties are correct. I use an excel spreadsheet with the check data, reported well production data and other information for a couple sample months to see if the check payments are correct. This kind of data analysis process might be a good seminar topic.
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OK not sure I understand the concept even though I am fairly adept mathematically. Lets see if you can make sense of some specifics: June 2024
Price 2.67 3.17
Gross Quantity. 8012.60 12728.32
Gross Value 21405.92 40382.84
Deductions 3350.72 2907.05
Net 13104.72 37475.79
Interest 0.00030336. .00001054
Owner Value. 6.49 0.43
Now correct me if I am wrong but the Price X Gross Quantity does not equal Gross Value on the left side of the data. Nor does Gross Value - Deductions + Net Value on the left side. And the Interest X Owner value does not equal 6.49. But it is funny that those same simple math operations work out fine on the right side. After playing with these figures for a while and considering your comments it still does not make sense.
And to add another little twist to the whole thing, the reported well production figures reported to the Oklahoma Coporate Commission was:
Foundation Energy = 12247.
Bluemark = 427
for a total of 12674, which is way out in left field when compared to the Accounting figures mentioned above.
Looking at reported volumes by operator and WI taking in kind - Operator 12247/12674 = 96.631% and WI 427/12674 = 3.369%. Keep in mind that gas volumes shrink when transported to gas plant and processed. Some companies report the net volume after processing and others report gross production volume on the check. I am assuming here that you are not being paid for NGL which would need to be included in the gas sales for accuracy. For gas prices, the two digits is a rounding difference. Gross value $21,405.92 / 8012.60 mcf = 2.672 price and $40,382.84 / 12728.32 mcf = 3.173 price. The Owner Gross Value matches the Gross Sales and applied DOI - $21,405.92 X 0.00030336 = 6.49 and $40,382.84 X 0.00001054 = 0.43. What are the costs called? The 40,382.84 - 2,907.05 = 37,475.79 and the deduction is close to the severance tax rate. The 21,405.92 - 3350.72 is higher than the 13,104.72. Is some deduction missing? Is any of the deduction for OK income tax withholding? What is Owner Net Value?
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The 2907.05 deduction is labeled SEV so looks like you nailed that. The 3350.72 is labeled CMP which I presume means compression. There are no other deductions listed before the Owner Value figures (6.49 and 0.43) There is a small deduction which I presume is state withholding of $0.38 and $0.03. And yes I do have NGL as well the figures for that are (using the same categories) 0.72, 37220.60, 26810.56,1889.74 SEV, 24920.82, 0.00030336, $8.13, $0.57 withholding?
Back to simplified basics. When gas gets to the processing plant, it is processed for removal of NGL which are sold separately from the remaining dry gas which is sold at the tailgate of the plant. Gas can be reported on your check in one of two ways - #1 Gas sales including NGL sales (called ‘wet’ gas) and #2 Gas sales alone (called ‘dry’ gas) and NGL sales separately. On your check, the Operator is reporting for its 96.63% share, the ‘dry’ gas is being reported as Gas and also the NGL. The 8012.6 mcf is the remaining gas volume after processing. The 37220.60 is gallons of NGL (liquid measuring). That is the 0.00030336 DOI. The Operator is reporting the WI Taking in Kind 3.37% share as a combined gas and NGL and using 100% of wellhead mcf as volume. To compare, you add the Op Gas Sales and NGL Sales (21405.92+26810.56 = $48,216.48. Dividing the total gas sales by wellhead volume 12,728.32 gives a price of $3.788. If you deduct the compression and the other costs excepting severance tax, then you get closer to the WI price of $3.17. So you are being paid properly, assuming that the costs can be deducted under your lease. Finally, the $0.57 is the Severance Tax 1889.74 X 0.000300336 doi and is not OK income tax withholding.
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Your math and explanation are very helpful. I think I am beginning to understand it all.
However you brought up another point which I will ask about, the lease terms and deducting compression and other expenses…
The first clause of my lease reads:
- To deliver to the credit of lessor fee of cost, in the pipeline storage tank to which it may connect its well, the three-sixteenths (3/16ths) part of ask oil (including but not limited to condensate and distillate) produced and saved from the leased premises.
Realizing that I might have to talk with a lawyer on this, is it your opinion that they cannot deduct costs?
Any lease must be read in its entirety as later clauses may affect earlier clauses. Also state law and court decisions regarding wording can affect a lease. I am not familiar with OK law. The clause above seems to deal with oil, rather than gas, but I do not know what “ask oil” is.
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sorry that was “all” oil…lol and now I just realized the 2nd clause is about natural gas. I shall have to read that one over carefully.
Read the whole lease and any Ex A. Many operators have an apparent no deductions clause in the main body of the lease, but put them right back in using the Ex. A. Watch for the word “however”.
thanks for weighing in on this. I see no exceptions or howevers in the lease. For both oil and gas it says all oil or gas produced and says nothing about deductions just a 3/16th share. Now the lease was with Pablo Energy who originally drilled the 3 wells and apparently sold some portion of their interest to Foundation Energy. they now apparently operate the 3 wells because all of our checks and statement come from them. They appear to be deducting from payments. the deductions are labeled CMP and SEV, I presume meaning compression and severance.
Recently Pablo Energy drilled a horizontal multi unit well and I get 52.38% of the production to which my decimal interest is applied. my new decimal interest is .00016442 (0.00031389 x 52.38%).
Now looking at their statement, they multiply the price per unit 2.5015 times the volume 50241.87 = 125,612.497 X 0.00016442 = $20.66 the only deductions are one for PROD/WPT which is $1.08 and OK state withholding of $1.03 .I do not now what the PROD/WPT deduction is but it doest appear that they are being anything but up front on their statements where as Foundation seems to be making the statement as unclear as possible.
Does the royalty clause of your lease say “gross” or “net” for oil and gas?
The oil section says “free of cost” and does not mention net or gross. The gas clause says: To pay lessor for gas of whatsoever nature or kind (with all its constituents) produced and sold or used off the leased premises, or used in the manufacture of products therefrom, 3/16 of the GROSS proceeds received for the gas sold, used off the premises. or in the manufacture of products therefrom, but in no event more than 3/16 of the actual amount received by lessee, said payments to be made monthly. Does that clarify things?
By the way, what is an Ex A?
“no more than 3/16th of the actual amount received by lessee” is probably why you are getting charged. The operator is paying the post production charges and probably trying to pass them on to you. Contact them and ask them since the lease says GROSS.
Exhibit A is an addendum to a lease that outlines more clauses than the main lease document. Many operators offer a draft lease that is mostly in their favor. Savvy mineral owners get an attorney to review the draft leases and makes changes that are more favorable to the mineral owner. These changes are often included in the Exhibit A. (Speaking from an OK lease owner’s point of view).
WPT = Windfall Profit Tax???
Thank you I will do that. The other multi unit well makes a deduction for “PROD/WPT” any idea what this is? Since I have the two different companies giving me statements I have something to compare, but it helps to know what the abbreviations mean.
Not Windfall Profit Tax. That was defeated.
The statement should have a list of abbreviations. It could be water procedure test.