What’s the production status of your wells? How much revenue do you anticipate next summer? In any other industry, these would be simple questions. Oil and Gas is an industry mired in complexity. Each royalty check contains a current month estimate plus potentially two years of ins and outs. There’s an extra $20 for the underpayment last January. There are a few cents less for that overpayment last July. And all that is rolled up into disparate datasets, error prone systems and paper. Piles upon piles of paper. It’s due to gas balancing.
Why Does It Happen?
Natural Gas flows. Have you ever tried to measure a moving commodity that shifts and expands due to temperature? It’s measured at multiple points along the massive supply chain, so your initial check is an estimate. As the numbers, percentages and metrics are analyzed, you start to see ins and outs on your checks reconciling the estimates to the actuals. As new supply chain data arrives, the numbers are updated and the payments are reconciled, which makes for a messy and lengthy process. Maybe you weren’t able to take your full share this month. Maybe there was a miscalculation initially that is being corrected? Regardless of the why, gas balancing is often the primary culprit that dictates that your statement be shipped in a parcel instead of mailed in an envelope.
What’s Involved in the Process?
Most wells have multiple working interest partners who each require higher accountability based on the Joint Operating Agreement (JOA) into production levels and equitable compensation. A working interest partner can opt to take his/her portion of the produced gas in kind and market its sale on their own. Imbalances occur when trying to measure and divide the production fairly. All of the terms and information should be addressed in a Gas Balancing Agreement. While each state of operation requires different elements and terms, the agreement should address the following situations:
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