Been receiving royalty checks for a few years now and lately I’ve started to question whether I’m actually getting paid correctly. The statements are honestly impossible to understand - different deduction line items every month, prices that seem lower than what I’m seeing reported, volumes that I can’t verify anywhere.
Finally sat down and tried to cross reference my payments against the RRC production data and the numbers don’t match up cleanly. Not sure if I’m reading it wrong or if something is actually off.
A few questions for people who have dealt with this:
How do you actually verify your payments are correct? Is there a process you follow?
Have any of you caught real underpayments and if so how did you go about it?
Is there any software or tool that makes this easier? I’ve looked around and can’t find anything that doesn’t require you to already be an expert to use
Feels like there should be something that just lets you plug in your statements and tells you if something looks wrong - does that exist and I’m just missing it?
That is a very good question! The most basic answer is that the volumes reported to the state are the wellhead meter volumes (if it is working properly) (or might come from an allocation meter) at the gathering line and back allocated. The volumes on your statements are from the sales meter which is on the back end of the processing plant for gas or from the sales from the tanks for oil and can be many miles away. Those two meters are a long distance apart and a whole lot of processing happens between the two for gas! What you see posted in the news for WTI (oil) or Henry Hub (gas) prices is not what your operator is getting paid for a contract price.
For gas, the numbers will rarely match due to line loss, flare, fuel usage, leakage, venting and all sorts of reasons which are due to the separation processes that happen along the gas processing stream. Gas is paid by its BTU value and your statements may have various forms of the gas C1 to C7+ all rolled up into one averaged line on the statement. It can be very frustrating to read them and wonder if they are correct. A good analogy is a dairy farm. Hard to allocate the price of butter, cream, skim milk, cottage cheese and yogurt back to the original cow!
NARO (National Association of Royalty Owners) just had an excellent webinar today about that very issue on what happens in the midstream between the well head and the tailgate of the plant (and why the numbers are so different!). If you are a NARO member, the webinar will be posted in a few days if you didn’t catch it.
Oil is usually in the ballpark, but can be off a bit due to timing. The state numbers will be a wellhead meter volume. The sales volume may differ if the oil is stored in a tank and picked up in a regular fashion. You get the sales volume from the pickup.
There is no simple way to verify the gas. If your numbers are terribly off, the first place to check is to see if your net acres and royalties match what the operator says. If you want to pay for an audit, that is an expensive way to verify. There is a fairly easy way to convert the gallons for NGLs back to bbls or mcfs, but I have to find the equation. Been a while since I used it.