Royalty check calculation

Hello everyone, and thanks for providing helpful and informative materials on this forum.

I do have a question/concern regarding the Gross value calculation on our Royalty Payment check statement. Below is what it's reads:

Prod Date Product BTU factor Deck Dcml Gross Vol Gross Value
Int Type Price Dist Dcml Owner Vol Owner Value
4/2015 PPROD 0.000000 0.00537968 69,836.34 17,518.01
RI1 10.54 0.00537968 375.70 94.24

From our understanding, the Product Code "PPROD" stands for "Plants Product or NGLs" and the Gross Value is equal to Price Multiplied by the Gross Volume. If that being true, then our Gross Value is grossly miscalculated.

We contacted the Operator and here is their response:

"The gross volume on the detail for PPROD is gallons, while the price reflects a per bbls price. I know that is confusing. The conversion is 42 gallons per barrel. Using your first line as an example 69,836.34 gallons converts to 1,662.77 barrels. The proceeds we received for PPROD was $17,518.01. The price on the check is a calculation and is rounded to 2 decimals. $17518.01/1662.77 = $10.5354".

From our prior statements, there has been no indication of such conversion, and the statements were correctly calculated using the formula as stated above.

Are we missing something? or something is fishy. We would really appreciate every suggestions and opinions.

Thank you all, and have a wonderful 4th of July Holiday weekend.

Hi, Ayo -

If, when you wrote: "From our prior statements, there has been no indication of such conversion, and the statements were correctly calculated using the formula as stated above.", you meant that this is the first royalty check you have received where the conversion from gallons to barrels was used, then I would suggest you take your papers and check stubs to an Attorney and ask them to look into the matter.

Hope this helps -

Charles Emery Tooke III

Certified Professional Landman

Fort Worth, Texas

Most companies report the volumes in gallons and calculate the price per gallon on the check stub. In your case, the price is $0.25 per gallon which may seem low, but is unfortunately is not out of line today due to low ethane prices. Some companies report the wellhead mcf volume in place of gallons because the products are derived from the gas. Some companies report the volumes in barrels which makes the price seem higher (as your $10.54). I think that it is relatively rare for a company to mix these by reporting the volumes in gallons and then calculate the check stub price based on the lower barrel volume. It obviously confuses any royalty owner who is trying to evaluate his check stub. But the price sure looks better to those who only take a cursory look. Now that you know, you can make an allowance for this odd reporting. If the well is in Texas, you can match the gross sales to what is reported to the Texas Comptroller. Keep in mind that the sales revenues for gas and liquid products may be reported separately under natural gas or combined into one figure.

I would wait to see how they handle the next check. They may have changed their way of doing the accounting for liquids or they may also be trying to disguise the fact that the price per gallon is so low now. I am not sure that it has dropped to 25 cents per gallon on average for all plant products, but it has dropped considerably.

Mary Ellen Denomy, CPA, MBA

Accredited Petroleum Accountant

Certified Fraud Deterrent Analyst

Master Analyst in Financial Forensics

The math is correct. That means that the formula is correct. That does not mean that each number in the formula is accurate. Ms. Denomy made a good suggestion, however, if fraud is involved, they will likely use the same methodology until caught.


Buddy Cotten