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Royalty Check Examples!

Posted by bernell on August 24, 2014

Comments about the earlier post on Royalty Check Examples! can be made here.

I used a format on the other post that didn't allow for comments...sorry.

Also, while you're here, I should mention that I used production numbers reported on the Crosby and Jackson wells rather than the sales numbers.  Royalty participants are paid from actual sales numbers.

The sales numbers are always going to be less cumulatively than the production numbers.

There are two reasons for this.  First, is that almost always at the end of a month there is some oil in the tanks that hasn't been sold, as of yet.

Second, when water produced by a well is hauled off for disposal, the disposal companies can and do salvage some oil from the water.  These disposal companies report on a pro rata basis the oil they "produce" as production from all wells they have hauled in water.

So, let's say a water disposal company hauls in 100,000 barrels from 10 wells during the month...10,000 barrels from each well.  And, let's assume this disposal company salvages 200 barrels of oil from the water.  They will report a pro rata "Production" to the Mississippi Oil and Gas Board for each well of 20 barrels for the month.

However, the water disposal company gets to keep the income from the oil.  

It's lagniappe (bonus/extra) for the water disposal companies and loss revenue for the operating companies and royalty owners.

Obviously, the disposal companies like this bonus and when they bid on disposing the water, they are fully aware of it.  So, their bid is based in part of the knowledge they will get some extra income from the salvaged water.

By the way, here is a link to the other "Royalty Check Examples!" post.

Royalty Check Examples!

Comment away!

What do you think about it?