Monthly Royalty Payments - Oil Company Barrel Pricing and Wellhead Marketing Deductions

#1 - Regarding oil barrel pricing by the oil company, we have several producing wells in Glasscock County that are leased and operated by Apache Corporation. Our lease calls for the payment of oil royalties to the Lessor based upon the "average posted market price of such one-fifth (1/5) part of such oil at the wells as of the day it is run to the pipe line or storage tanks". My first question - why is Apache Corporation's monthly oil barrel pricing consistently and significantly much lower (-6% to -20%) than what is readily published for West Texas Intermediate (WTI) oil?

#2 - Regarding wellhead marketing deductions for gas, casinghead gas and other by-products by the oil company, our lease calls for a prorata share equal to our royalty percentage of all marketing costs. The percentage deduction from monthly gross revenue for the oil is minimal and nominal, but the percentage deduction for everything except oil is as much as -50%. These deductions seem exorbitant. Does anyone else experience this?

I am just wanting some confirmation from others that I am being paid fairly and per my lease by Apache Corporation.


Eric B.


1) Oil. The WTI price is not is not the same as the average posted price. Quite a few purchasers post prices during the month and these can vary quite a lot and the average will be lower than the WTI price. Also, the lease clause provides for price on the day run. This is not generally advisable as the prices can vary widely during the month. You do not know what particular day your oil was picked up. More often leases use the average price for month. Better to use an index price for WTI. Most likely the Apache price also is reduced by transportation costs - trucking or pipeline. In addition, there is a factor from Cushing - increases price when there is more demand than supply and decreases the price when supply is excessive.

2) Gas. As described, your lease allows unlimited deduction of costs for the gas. Unfortunately, marketing is not a direct expense, but generally an internal overhead charge that oil companies use to add to costs on the grounds that there is a staff constantly negotiating gas prices and their salaries, etc are being charged. Chesapeake used to charge marketing when selling the oil and gas to its own subsidiary - certainly not an arms length negotiation. In an era of low gas prices, any costs seem high relative to the sales revenues.

Bottom line is that you are being charged expenses per your lease. It would be difficult to prove otherwise. This is why more mineral owners are negotiating cost-free, or limited costs, royalty provisions in leases.