Wondering why my check is not reflecting high price of oil!
Your oil checks are about one month behind and your gas checks are about two months behind. Also, your particular operator may have previous contracts that do not reflect the rising prices. Time will tell.
Thanks. This has been going on since November, not going up!
Probably tied to predetermined contracts that are not changing as fast as the day traders.
I was about to ask the same question. Hard to believe we are getting $35 a barrel for $130 oil because of some silly contract. How long are such contracts for anyway? Somebody is getting REALLY RICH from that method! With too much time on my hands, have been doing trivia thinking. For instance: IF the price per barrel doubles, will the royalty checks double? If not, why not?
Your current checks are based on the prices during the month of sales, so March checks are reflecting what the prices were when your barrels or mcf were sold according to the contract in place at that time. It will take about two months time lag to see an upward swing (if the contracts allow). The prices you hear about right now are for purchases of future barrels. Some contracts are years long. Some are shorter.
If the price of oil doubles, then the royalty checks may not actually double. You have to combine the volume produced with the price on the sale. Wells normally decline in volume, so you will most likely have less volume with the higher price, not equal volume. If you have new wells coming online right now, then that would be nice as they will be at their peak volume. Also factor in higher severance taxes proportional to the price.
In this hypothetical world, would you be complaining in 3 months when you were getting paid $100 per barrel but the current market was at $65 per barrel?
No, but most people would just be complaining about something else.
This situation is only theoretical. You are going to get paid the market price at the wellhead. That’s your standard lease. On whatever day there is a custody transfer event. Summed up for the custody transfer events that occurred in that month. Things like hedges are not going to affect you at all. That’s a paper derivative trade that has nothing to do with you. Good or bad. If you sold a 200 bbl load of oil yesterday in the Permian you are going to be getting paid roughly whatever the Midland price was, say $115/bbl. Minus some gathering and transportation fees, which is typically what your contract is. Gas people and oil people look at things differently. For gas well owners you can get killed by compression/gathering/transport (i.e. “the contract”), those can eat up a huge % of the revenue. For oil well owners, not so much. There is no contract issue.
As M.Barnes said, it takes a while to get things all squared away so you are most likely getting paid this month (March) for the production/disposition that occurred in January. So there are no $125/bbl unicorn farts coming your way in this month’s check. Those will be in May.
Don’t look at the total $ on the check. Look at the volume. And the price per barrel. And per mcf. And per gal/bbl of plant liquids. Track what your volume is doing. Compare those prices at those dates with the EIA pricing for those dates. I think you will find that it’s all pretty simple and makes sense. I organize a lot of Permian royalty checks, in most of them the effective pre-tax price per barrel is 94%-97% of WTI pricing in a given month (since 2020). Some people just like to look at the total amount in the check and it’s like Xmas getting the mail, and that’s cool, but in that case you don’t get to ask your aunt all sorts of details about where she bought the sweater. Just wear it.
Yes, if the price of oil doubles AND your volumes stayed the same, your royalty check would be double. Taxes are linear with price.
Laugh. Sorry. This is kinda pissy, my patient explaining self is ready for a Spring Break beer.
My operators seem to go in for 90 day contracts. I’m not familiar with where your production is, mine is in North Dakota and that being the case, for me there are other considerations…until about May when it thaws out. You can’t sell what you can’t move.
Thank you, that fills in the gaps in my knowledge base. I feel better now, thanks again for your time and explanation.