What to request from the oil company to verify royalty statement accuracy?

Royalty Statements
1

Can anyone help me with the correct oil and gas language?

I'd like to write a letter to find out information regarding my royalty payments, and would like to know exactly what to say to get their attention, and answers. Phone calls have only produced vague and ambiguous answers, not specifics.

In my limited research, I've found the royalty owner lawsuits are getting overturned for not being diligent about managing their assets.The royalty statements may or may not be correct, but it falls upon us to verify everything on it, even if it means hiring an outside professional to interpret the information.

That being said, what documents do I ask them to produce, if the gross volume of oil on the statement doesn't match the RRC reports? I also want to inquire about the NGL, and how they are accounting for that, since there is no longer a line item on the statement.

Thanks,

Terri

2

Terri,

This is somewhat dependent on how the field infrastructure is set up, but if you have liquids production (oil or condensate) you need to request the following:

1. Tank gauges - these are the daily measurements of the liquid volume in each production tank

2. Tank strap tables - these are tables that convert the height of liquid (i.e. the tank gauge) in a production tank to a liquid volume

3. Run tickets (including seal records) or LACT meter readings - run tickets are the statements generated for each truckload of oil hauled from location (seal records are unique seals placed on tank valves to ensure that there has been no tampering). If oil is not trucked from tanks, it is measured with a LACT meter (Lease Automatic Custody Transfer meter) which measures all oil sent through a pipeline

4. Well test records - if more than one well produces to a common production tank before the oil and water is metered, the operating company will periodically conduct a test on each well in order to allocate the volume read at the production tanks to each producing well

For gas production, you will need the following:

1. Gas meter readings - assuming gas is sold (rather than flared or vented) there will be two meter readings - one from the operating company and one from the purchaser (gas plant). Request both - they should be extremely close.

2. Gas measurements - you will need to know the BTU (energy) content of the gas being sold and the gas analysis (which reports the fraction of the gas that is methane, ethane, propane, butane ,etc.)

3. Plant statements - when gas is sold to a gas plant or run through a gas plant, the plant must record the plant liquids (or natural gas liquids) that are stripped from the gas. This volume will be related to the BTU content of the gas and gas analysis. The amount of plant liquids that belong to the operating company (and you) is also dependent on gas processing contracts.


Feel free to send me an email if you need help with specific questions. Good luck.

3

For gas production, item #2, make that Gas Analysis, not gas measurements.

4

Thank you Jason for your response. In a letter last year, they notified me of a change on one lease which was to add W-10 tests as the allocation method for production rather than PD meter allowing them to use 2 seperators instead of 5. What does that mean?

Thanks,

Terri



5

The W-10 is a state mandated annual produciton test (see attached for specifics). These tests would provide for very rough allocation method (see item 4 in my comment above). Again, the significance of this depends on how the field is set up. If production volumes do not cross lease lines, that is, each lease has its own production facilities, it really doesn't matter if allocation is extremely accurate because the royalty owner is paid on total production. However, if there are multiple leases producing to one central facility with different ownership for each lease, then allocation is extremely important.

My background is the engineering and production side. It would be a land/legal question regarding what kind of testing is required by your lease. It is my guess that the operating company's obligation to test wells is entirely dependent on the lease document.

2857-W10.pdf (28.1 KB)