On a royality payment statement, what is meant by the BTU factor with regards to Natural Gas prices or payments?
I’m not in the business, but I suspect it’s how rich is the constituent gases and their proportions; IDK what all types there is, but everyone’s heard of butane, propane and methane. I guess not unlike how (say) cheese has varying calories depending upon the type of milk and butterfat percentage.
Dear Mr. Pruitt,
Natural Gas is produced in MCF, but you are paid on BTU, which is a way of measuring the heating (energy) value of natural gas. There are others, but BTU factor is the one that shows up on royalty checks.
Natural gas is a mineral, like a diamond. As does diamonds have different grades and values, so does natural gas. The higher the BTU factor, the more you are paid. When BTU and MCF are equal, then the BTU factor is one. You might have a BTU factor of 1.3, which in a nutshell means you are paid (on gross) 30% more than the MCF = 1 price.
Thank you Mr. Cotten for your responce, I am realy learn a lot over the last couple of months after joing the forum and appreciate youe knowledge of this business. I guess i only have one other question. If a well is producing oil and gas then it might be a safe bet that the BTU factor would be higher then a gas only well and what is meant by a dry gas well? I hope these questions do not seem silly but i am just trying to learn more about what is being produced in the wells we have and the prospect in the near future of fina1ly getting some nice producing royalties.
Buddy Cotten said:
Dear Mr. Pruitt,
Natural Gas is produced in MCF, but you are paid on BTU, which is a way of measuring the heating (energy) value of natural gas. There are others, but BTU factor is the one that shows up on royalty checks.
Natural gas is a mineral, like a diamond. As does diamonds have different grades and values, so does natural gas. The higher the BTU factor, the more you are paid. When BTU and MCF are equal, then the BTU factor is one. You might have a BTU factor of 1.3, which in a nutshell means you are paid (on gross) 30% more than the MCF = 1 price.
Best,
Buddy Cotten
Mineral Manager
Richard,
Good questions regarding the BTU content of a gas. Basically, the natural gas produced from a well is composed of various hydrocarbon molecules. Generally, the gas is made up of primarily methane (one carbon molecule and four hydrogen molecules) but can include ethane (two carbons), propane (three carbons), butane (four carbons) and others. The more carbon molecules, the more energy the gas has.
Methane, ethane, and propane are gaseous at standard conditions (atmospheric pressure and 60 degrees F) but all other hydrocarbons are liquid at standard conditions. A "dry gas" is composed primarily of methane with very little ethane, propane, or butane. It is refered to as "dry" because when it is sent to the gas plants, there is very little liquid hydrocarbons (plant liquids such as butane and propane) that can be stripped from the gas. Conversely, a "wet gas" contains more of the higher energy content hydrocarbons that can be stripped from the gas and sold as liquids apart from the gas. Because liquids can be stripped from a "wet gas" and sold apart from the gas, a wet gas is much more valuable than a dry gas.
Good question.
Richard Pruitt said:
Thank you Mr. Cotten for your responce, I am realy learn a lot over the last couple of months after joing the forum and appreciate youe knowledge of this business. I guess i only have one other question. If a well is producing oil and gas then it might be a safe bet that the BTU factor would be higher then a gas only well and what is meant by a dry gas well? I hope these questions do not seem silly but i am just trying to learn more about what is being produced in the wells we have and the prospect in the near future of fina1ly getting some nice producing royalties.
Buddy Cotten said:Dear Mr. Pruitt,
Natural Gas is produced in MCF, but you are paid on BTU, which is a way of measuring the heating (energy) value of natural gas. There are others, but BTU factor is the one that shows up on royalty checks.
Natural gas is a mineral, like a diamond. As does diamonds have different grades and values, so does natural gas. The higher the BTU factor, the more you are paid. When BTU and MCF are equal, then the BTU factor is one. You might have a BTU factor of 1.3, which in a nutshell means you are paid (on gross) 30% more than the MCF = 1 price.
Best,
Buddy Cotten
Mineral Manager
Thank you Mr. Stewart for explaining about Natural gas and its production. So if I am understanding this correctly a higher BTU factor is probably a wet gas and they are pulling the other liguids out of it so a higher price at production time. Do they ever pay royalities for those other liguids or just a higher price per MCF on natural gas? What would probably be the BTU factor for dry gas and what would be a good factor for the wet gas.I see you have some experience in the Permian basin. We have a small part of over 14,000 acres in Borden county and just recently a major player lease all the acreage, Are they going to use horizontal drilling with the fracturing to get to some of the old oil in this area.
Yes, Mr. Pruitt,
You are correct-o-mundo. Mr. Stewart was explaining the process of a gas processing plant. The liquid state of those products (as opposed to the gaseous state) are referred to Natural Gas Liquids. In the normal royalty check, the typical code for payment will be NGL. Refer to the check stub to see how your payor codes this asset sale.
Richard,
In the oil and gas industry, we often refer to units of BOE (barrels oil equivalent). This allows us to add oil production to gas production for a gross production volume from an area. It is standard to equate one barrel off oil to 6 MCF gas (this is because the energy content of one barrel of oil is approximately that of 6 MCF gas). As you may have observed, one barrel of oil sells for much more than six times that of natural gas. This is where gas processing becomes so valuable (both to the royalty owner and the operating company).
I'm not a processing guy, but here is the gist of it. Pipeline quality natural gas has an energy content of about 1010 or 1020 MBTU/MCF (by the way, BTU stands for British Thermal Unit, which is the amount of energy necessary to rasie one pound of water one degree farenheit). So, when a well produces gas, the pipeline company will measure its BTU content as it enters the pipeline and the operator/royalty owner is paid whatever the gas sales price is multiplied by the BTU ratio (well BTU content divided by pipeline quality BTU content) less transportation and processing costs. Without gas processing, a wet gas is just sold into a pipeline at a high BTU content and its value is just raised by a fraction based on its BTU content.
However, if the gas can be processed to strip out the NGLs (natural gas liquids) such as propane and butane so that the gas BTU quality is decreased to pipeline quality, the gas can be sold at market price using roughly a 1.0 BTU factor and the NGLs can be sold not based on their BTU content but rather as some fraction of market oil prices. The difference between the NGLs sold as part of a high BTU content wet gas and the NGLs sold as plant liquids is referred to as the spread. There are entire companies that exist because of the concept of "spread".
Unfortunately, gas cannot always be sent through processing plants or the operating companies' contracts may not allow them to take plant liquids (how that relates to royalty owners might be a good question for Buddy Cotten!).
I hope that helps a little bit. Regards.