In August I received a partial royalty check dating back to March 2013 thru June 2014. I just received a payment on some of the additional royalties due that Oasis has been holding (although Zenergy paid on those same acres that Oasis held, but that's another subject) and some of the unit values have dropped compared to the first check I received in August. Those adjustments were made on my most recent check and there are data entry errors. I also have a question about the multiple unit value adjustments that are made during a month. For example, in September the unit value dropped approx $3, after the first 220 barrels, so there are two different unit values in that month. Since March 2013, I haven't seen many adjustments up. Is this something that oil companies do? Adjust the value down, but not be consistent about adjusting up?
I'm not one to just glance at the bottom line and put the check in the bank. I need to make sense of this mess so I can take it back to Oasis. Where can I find historical information on prices and adjustments so I can verify the information on my check stubs?
TONI,
Read your lease regarding measurement and payment of royalties or production sharing. Royalties are paid on what the operator receives or the market price they have agreed upon with product purchasers. If the price is tied to an index price such asWest Texas Intermediate Crude or Cushing trades, the price received by the operator under that contract is pre-determined and at a negotiated market price. Sometimes the market goes up and sometimes down. We are in a major price downturn right now. Your check for December 2014 sales could have many prices; all down. Check the price of a gallon of gas next time you fill up. Gasoline price is tied to crude oil prices eventually. That refinery in Billings can't afford to pay buy oil at $90/barrel and sell gasoline for $2.50 gallon.
Operators also are given price adjustments after heating value and chemical tests are made. Those adjustments are made back to the payee after the fact and usually as double entries on a check stub. (Debits and credits of the entire amount.) I know it looks like data entry corrections but may not be.
Oasis is not a vertically integrated company like XTO/Exxon so it may have contracts with oil traders who sell future production at prices set by the market at the time of the contract. As Oasis sells more product on contract vs. spot market, the prices will vary by contract and auction. At the end of the day, oil is a global commodity and subject to the good old rules of supply and demand. Accordingly, your check for December production may be 60% of your October production check if production stays the same (which it won't) unless Oasis has hedged its production in a long term contact.
Thank you, Gary. I appreciate the details.
Kind Regards,
Toni
Gary L. Hutchinson said:
TONI,
Read your lease regarding measurement and payment of royalties or production sharing. Royalties are paid on what the operator receives or the market price they have agreed upon with product purchasers. If the price is tied to an index price such asWest Texas Intermediate Crude or Cushing trades, the price received by the operator under that contract is pre-determined and at a negotiated market price. Sometimes the market goes up and sometimes down. We are in a major price downturn right now. Your check for December 2014 sales could have many prices; all down. Check the price of a gallon of gas next time you fill up. Gasoline price is tied to crude oil prices eventually. That refinery in Billings can't afford to pay buy oil at $90/barrel and sell gasoline for $2.50 gallon.
Operators also are given price adjustments after heating value and chemical tests are made. Those adjustments are made back to the payee after the fact and usually as double entries on a check stub. (Debits and credits of the entire amount.) I know it looks like data entry corrections but may not be.
Oasis is not a vertically integrated company like XTO/Exxon so it may have contracts with oil traders who sell future production at prices set by the market at the time of the contract. As Oasis sells more product on contract vs. spot market, the prices will vary by contract and auction. At the end of the day, oil is a global commodity and subject to the good old rules of supply and demand. Accordingly, your check for December production may be 60% of your October production check if production stays the same (which it won't) unless Oasis has hedged its production in a long term contact.
Gary L Hutchinson
Minerals Management and mineral economist.
Adjustments are routine. Accountants make adjustments by first reversing (subtracting) the incorrect (or persieved incorrect) entries. Then they will then enter the correct (or persieved correct amount). That may not be the end of it, other corrections can be made later. Some companies are better at accounting and seldom make corrections, others will make corrections nearly every month. Computers are nearly perfect, but programs to generate the revenue statement aren’t. Entry clerks often make mistakes. Blame the expansion of the oil bidness, there is a vacuum that needs filled by experienced and competent personel.
I have no clue about your unit participation. Clearly, a one time $3 adjustment doesn’t matter, but the reason for the adjustment to your participation may.
Yes, ultimately, it is your responsibility to verify that you are being paid correctly.
Best of luck to you, and happy holidays !