Forensic Analysis of Well Head Gas Pricing, 1999-2005 State of Texas PART 1 Overview

di Energy Strategy Partners

Forensic Analysis of Well Head Gas Pricing, 1999-2005State of Texas

PART 1Overview

Allen [email protected]

Ramona [email protected]

A drillinginfo Company1-888-477-7667


An analysis of Wellhead Gas Prices for each Railroad Commission District was carried out todetermine if said prices were being negatively impaired relative to historical pricing.

The top 1000 gas producers per district were accessed through the Drillinginfo database alongwith their monthly produced and sales volumes along with their “Raw Gas” sales amountsand Price per MCF amounts for July 1999, July 2001, July 2003 and July 2005, and the valuescompared to Henry Hub gas prices for those months.

Although the volumes are in MCF, the produced volumes account for nearly 70% of the state productionand is unlikely to vary significantly in overall BTU mix from test period to test period.

It is determined from the study that there is, in fact, a significant impairment to wellhead gasprices amounting statewide to an equivalent of 12% relative to Henry Hub. Further, this impairment began sometime between 7/2003 and 7/2005, except in the Barnett Shale area, where transportation access has had a measurable effect since 2001. Due to the dynamic nature of natural gas markets, a definitive determination of non-market causes, if any, to this effect is impossible to ascertain.

The only definitive statement made herein is that well head market prices for Texas natural gas are becoming increasingly impaired versus the most liquid market basis.

di Energy Strategy PartnersIn the last 7 years, Texas Working Interest and Royalty Interest Owners have received 93-97% of Henry Hub prices at the wellhead in the Summer Season. Between 7/2003 and 7/2005, that percent has dropped to 85%.

Producer Take as a Percentage of Henry Hub PriceCombined State of Texas, July Index and Prices

93% 97% 97% 85%

8-12% Drop

4 Year Range

di Energy Strategy PartnersBetween 2003 and 2005, WI and RI owners have seen a dramatic drop in their take in Summer Markets relative to Henry Hub indices at the wellhead.

Producer and Differential Take Combined State of Texas

$2.29$2.13/$0.16

$3.14$3.05/$0.09

$5.03$4.90/$0.13

$7.63$6.48/$1.15

Henry HubWellhead

Differential

MinimumMidstream %Producer/Royalty %


Producer and Differential Revenue Increase Per 2 Year Period Combined State of Texas

Note how the Minimum Midstream take has increased over 750% between 7/2003and 7/2005 while WI/RO take increased only 33% during the same time period. Henry Hub increased from $5.03 to $7.63 (51.7%) during that period

MinimumMidstream %Producer/Royalty %


District 1


Producer Take as a Percentage of Henry Hub PriceRRC District 1

92% 96% 101% 88%

Wellhead prices in RRC District 1 have ranged from 92-101% of Henry Hub. In the last 2 years, this has dropped to 88%.

4 Year Range

4-13% Drop


Producer and Differential Take RRC District 1

$2.29$2.11/$0.18

$3.14$3.00/$0.14

$5.03$5.08/$?

$7.63$6.70/$0.93

Henry HubWellhead

Differential


District 2



95% 100% 102% 80%


4 Year Range

15-22% Drop



$2.29$2.18/$0.11

$3.14$3.14/$?

$5.03$5.16/$?

$7.63$6.17/$1.46

Henry HubWellhead

Differential


District 3


Producer Take as a Percentage of Henry Hub PriceRRC District3

95% 104% 106% 93%


4 Year Range

2-13% Drop



$2.29$2.18/$0.11

$3.14$3.27/$?

$5.03$5.34/$?

$7.63$7.10/$0.53

Henry HubWellhead

Differential


District 4


Producer Take as a Percentage of Henry Hub PriceRRC District4

98% 101% 103% 91%


4 Year Range

7-12% Drop



$2.29$2.25/$0.04

$3.14$3.18/$?

$5.03$5.17/$?

$7.63$6.93/$0.70

Henry HubWellhead

Differential


District 5



90% 93% 96% 85%


4 Year Range

5-11% Drop



$2.29$2.07/$0.22

$3.14$2.92/$0.22

$5.03$4.80/$0.23

$7.63$6.51/$1.12

Henry HubWellhead

Differential


District 6



95% 98% 101% 90%


4 Year Range

5-11% Drop



$2.29$2.17/$0.12

$3.14$3.08/$0.06

$5.03$5.06/$?

$7.63$6.84/$0.79

Henry HubWellhead

Differential


District 7b


Producer Take as a Percentage of Henry Hub PriceRRC District 7b

102% 96% 93% 86%

Wellhead prices in RRC District 7b have ranged from 93-102% of Henry Hub. In the last 2 years, this has dropped to 86%.

“Barnett Effect”Limited Pipeline Capacity

4 Year Range

7-16% Drop


Producer and Differential Take RRC District 7b

$2.29$2.32/$?

$3.14$3.01/$0.13

$5.03$4.70/$0.33

$7.63$6.57/$1.06

Henry HubWellhead

Differential


District 7c


Producer Take as a Percentage of Henry Hub PriceRRC District 7c

92% 97% 97% 90%

Wellhead prices in RRC District 7c have ranged from 92-97% of Henry Hub. In the last 2 years, this has dropped to 90%.

4 Year Range 2-7% Drop


Producer and Differential Take RRC District 7c

$2.29$2.12/$0.17

$3.14$3.05/$0.09

$5.03$4.87/$0.16

$7.63$6.87/$0.76

Henry HubWellhead

Differential


District 8



82% 87% 82% 77%


4 Year Range

5-10% Drop



$2.29$1.88/$0.41

$3.14$2.74/$0.40

$5.03$4.12/$0.91

$7.63$5.87/$1.76

Henry HubWellhead

Differential


District 8a


Producer Take as a Percentage of Henry Hub PriceRRC District 8a

65% 69% 70%

48%


4 Year Range

17-22% Drop


Producer and Differential Take RRC District 8a

$2.29$1.49/$0.80

$3.14$2.17/$0.97

$5.03$3.50/$1.53

$7.63$3.67/$3.96

Henry HubWellhead

Differential


District 9



105% 94% 91% 79%

Wellhead prices in RRC District 9 has been dropping from a high of105% of Henry Hub to its recent low of 79% of Henry

“Barnett Effect”Limited Pipeline Capacity

4 Year Range

12-26% Drop



$2.29$2.40/$?

$3.14$2.96/$0.18

$5.03$4.55/$0.48

$7.63$6.05/$1.58

Henry HubWellhead

Differential


District 10



90% 89% 90% 86%

Wellhead prices in RRC District 9 have been steady at 89-90% of HenryHub and is just now seeing some weakness to 86%.

4 Year Range 3-4% Drop



$2.29$2.06/$0.23

$3.14$2.80/$0.34

$5.03$4.50/$0.53

$7.63$6.56/$1.07

Henry HubWellhead

Differential


District 104% Drop

District 926% Drop

District 8a22% Drop

District 85-7% Drop District 7c

7% Drop

District 7b16% Drop

District 611% Drop

District 511% Drop

District 412% Drop

District 313% Drop

District 222% Drop

District 113% Drop

Summer well head price impairment relative to historicaldistrict base levels is evident in every RRC District.Statewide, it is the monetaryequivalent of a 12% add’lroyalty burden.

District 10 is the least effected with a 4% burden,While “Barnett” District 9 exhibits a 26% burden


The “Barnett Districts”can make claim to capacity restrictions ona year to year basis…

All other districts areproducing at or under6 year norms, thussuggesting local capacity is not responsible.


Summer market similar toWinter market…The “Barnett Districts”can make claim to capacity restrictions ona year to year basis…

All other districts areproducing at or under6 year norms, thussuggesting local capacity is not responsible.


However, when January to Julyproduction is compared, even “Barnett Districts” producedabove the previous JanuaryVolumes, except in District 9,i.e. Only District 9 can make acase for local capacity restrictions.

In this graph, positive numbers mean lower July producedvolumes to previous Januaryproduced volumes.

Forensic Analysis of Well Head Gas Pricing, 1999-2005 State of Texas PART 1 Overview

Documents

Transcript of Forensic Analysis of Well Head Gas Pricing, 1999-2005 State of Texas PART 1 Overview