Since July 2019 our vouchers have changed. What used to be described as "deduct codes" for gas were 1) processing, 2) gathering, and 3) compression. These were then all expenses that came off the total gross sales (now called "sales value") for the owner. Now these three codes have been combined into two 1)PRA (processing) and 2) Compression-gathering. These are listed in a column labeled "Downstream Pricing Adjustments" and are NOT figured into the "sales value" or ones gross sales.
Can someone explain this? I've talked to the oil company and am not getting satisfactory answers so thought someone might be able to enlighten me.
During the interim following the 2017 legislative session the Oil and Gas Division of the North Dakota Industrial Commission promulgated additional rules relative to royalty owner statements. The intent was purported to be that royalty owners should be given simpler, better, and more useful information so their royalty statements could be more easily understood. The implementation date for the rules changes was intentionally delayed so the 2019 legislative session "could have input" into any suggested changes to the rules or statutes.
The implementation date set by the NDIC was July 1, 2019. The 2019 legislative session did not take action relative to the rules and therefore the new rules became effective on July 1, 2019
As your question indicates, the result was to again delay and distort by the industry actions. Your frustrations are exactly why an active outspoken royalty owners association is critical to change. Very few legislators have a familiarity with oil and gas royalty statements and do not understand why it is important to the state budget.
I firmly believe that is the reason for WBROA but it will take a concerted group effort. Educating and creating the awareness needed is a monumental task. I can show what is happening to my family but I do not have the ability to explain what is transpiring in all of the various environments.
I also think it is incumbent that the Legislature become involved in designing and requiring a specific format for all royalty statements. But for that to happen, we will have to help them understand what will and will not be acceptable. The industry will obviously oppose change simply because it is would likely be counter to their attempts to mask what is actually happening.
So now the 1099 does not match the totals of the vouchers gross and deducts. What they have done is add the total price adjustments to the income and to the deducts. I'm still trying to find out from them how that is possible.
Can you tell me more about "downstream pricing adjustments" and if they are really income and a deduction?
Mr. Rosenquist….I’d like to take this opportunity to respond as well as to support Roberts explanation of royalty owners (and legislators) understanding, or, (should we say) the misunderstanding of the natural gas pricing structure, as well as to support his mission and his determination, which both are spot on.
I respond because I feel I must assist to explain to all, and to the legislature what is happening and why, before we all can begin to effectuate cause and to further effect the obviously needed necessary changes. This information is necessary for all to absorb.
The simple explanation of "what" is occurring is that your operator who, generated and who offered to you, your lease, and also is exactly whom is deducting these fees (gathering, processing, compression, other, miscellaneous, etc.) from your lease/royalties.
It is entirely plausible that your operator is an affiliated partner of a gas agreement with the gathering pipeline (the “gathering pipeline” is also known as “the midstream and downstream” refinery and is who provides the tailgate gas sales to Henry Hub).
The operator is the “upstream entity.
The operator being affiliated together with the gas pipeline is the Midstream and Downstream entity combined.
These "fees" are being charged BACK to the well head utilizing the "at the well rule" where these fees are "worked back" to "the well" head. And each royalty owner pays these fees per their pro rata amount of ownership.
HOWEVER, the "why", is that perhaps your operator, both directly and indirectly receives benefits from this affiliated partnership with the midstream/downstream pipeline via the gas agreement, as they receive these deductions that are returned BACK to the operator via their affiliation with the MIDSTREAM/UPSTREAM. (The affiliation is called a “2tiered MLP ..."Master Limited Partnership").
In shorter more easily understandable terms, the truthful explanation is that many operators are receiving back the benefits derived from these deductions, and the royalty owner is NOT RECEIVING back the very same benefits, of what was deducted. They are NOT receiving BACK they're proportional amounts of ownership, (but their operator IS receiving these benefits BACK) and their/our/your leases certainly didn't reveal that fact before you or us signed it.
That is the “bait and switch.”
Due to that fact, we all can readily understand better this “bait and switch” of these deductions we certainly didn’t expect and that of which were never disclosed to us, and we still are unable to understand these deductions because of the operators purposely NOT communicating, nor are they willing to be exposing the secret MLP affiliation to us.
Notwithstanding, the remaining reason your operator isn't communicating with you is due to them continuing to maintain this secrecy, and to continue to further obstruct the exposure of their direct and indirect BENEFITS that you do not equally enjoy via your proportionate amount of Fractional of ownership of the minerals you own, be it 1/8th or 1/6th etc.
The reality is this....
The royalty owner is paying for and providing undisclosed funding for the pipelines to be built and maintained for imperpetuity, while we also are further handsomely rewarding the operator/pipeline investors while receiving NON of the benefits taken via these "deductions".
It’s certainly happened to our family and our friends, and their families and their friends, and so on, in Divide County, and we investigated it all, and this is the information the operator/pipeline affiliation partners within the MLP failed (and refuses) to disclose in our lease and further refuses to communicate with you about.
In short...we were lied to and are still being deceived.
The other reality is that other royalty owners across the nation who were also suffering these “underpayments” had attempted to resolve these issues via class actions in court.
These class actions each took years (and ALOT of billable hours) to "attempt" to resolve and these class actions historically returned less than 1% of what was deducted back to the victims, while the operator and their affiliated Midstream/Upstream partners KEPT the other 99% of what they deducted.
That percentage alone certainly behooves the operators to employ the secret MLP, obstructs its existence, and the class action settlements buries these MLP facts in confidentiality agreements.