What are the numbers shown on the Pricing History Graphs? These graphs show the prices per unit volume (per barrel and per thousand cubic feet) that have been used, along with your historical and forecasted production from that well or lease, to calculate your royalty forecast. The prices for each month are taken from the daily futures contracts traded on the New York Mercantile Exchange (NYMEX). The prices for oil are taken directly from the NYMEX, while the price shown for natural gas is calculated from the price shown on the NYMEX. Contracts for natural gas on the NYMEX are priced for one million BTUs, so a conversion factor is used to represent gas produced at the wellhead which is in thousand cubic feet (mcf).
Are any adjustments made to the Oil and Gas prices?
- We highly recommend that for each well in your portfolio you enter the most recent month's royalty data, specifically the prices paid by your operator. Once you provide ShaleCast with those prices, we calculate how far off from the benchmark price your payment is. That difference between what your operator pays you per unit volume and what the benchmark price was at that time is your "Price Adjustment". We use this Price Adjustment to reduce or increase the prices we receive from NYMEX for future months. This adjustment simply shifts your individual price curve up or down.
- For those wells in Ohio, ShaleCast uses an additional calculation. Because Ohio reports production quarterly, as opposed to monthly, the contract prices shown on the graphs are the average of the three monthly contracts for the respective quarter.
- As mentioned above, natural gas contracts on the NYMEX are priced for one million BTUs (mmbtu), so a conversion factor of 1.022 is used to represent gas produced at the wellhead which is in priced in thousand cubic feet (mcf).
What are futures contracts? As implied by the name “futures contracts”, these are contracts through which a buyer purchases today a certain amount of natural gas or oil for delivery at some future month (as specified on the contract) from a seller, at a price agreed upon by both buyer and seller. These futures contracts are bought and sold every trading day on the New York Mercantile Exchange (the NYMEX). These contracts are monthly, so a buyer can purchase a contract for delivery of the oil or gas in November of 2019, June of 2022, etc. at the price agreed upon today. These contracts are like stocks in many ways in that the prices fluctuate all the time and that fluctuation is related to events that are occurring around the world and within our own economy, as well as the general principals of “supply and demand”. And also like stocks, every morning each of these contracts has an opening price, the changing price during the day, and at the end of the day there is a closing price.
Futures contract prices are tied to delivery at the Henry Hub in Louisiana for natural gas and West Texas Intermediate (WTI) for oil at Cushing, OK.
How often are the Oil and Gas prices on the graph updated? ShaleCast reviews the futures contracts for both oil and gas on the NYMEX every day. Each night, ShaleCast gathers the closing prices for the last trading day for every contract and updates the current values.
Why do the prices quoted on my checks not match the NYMEX figures? The price paid to the operator for oil and gas at the wellhead is different from place to place throughout the country and they are often different than the WTI or Henry Hub. ShaleCast supports royalty owners from many areas of the country where each of these areas has a different quality of gas or crude oil produced, as well as a different amount of infrastructure to support the production of the oil and/or gas. Some places have more pipeline available to ship the gas or oil where as some must use trains or trucks. In some places both oil and gas are produced with sulfur compounds which must be removed prior to use, thereby increasing the costs to produce that product, or lower the price received for it at the wellhead. Many factors that vary from area to area go into determining the actual price paid at the wellhead for crude oil or natural gas.