Bob Skarphol

Tioga

Over the last several months I have been unsuccessful in trying to elicit a thorough explanation from Hess Bakken Investments of the Postproduction costs being assessed against the royalty owners’ statements. Conversations with other royalty owners seeking similar information from other operators have been equally unsuccessful. This persistent lack of willingness to be transparent about what is happening has resulted in my trying to quantify what these Postproduction costs mean to all royalty owners.

The average monthly “other deductions” for royalty owners in the Hess Bakken Investments Beaver Lodge Unit since the beginning of 2016 has been in excess of 35%. So how do we proceed to quantify the cost to all royalty owners with North Dakota interests? In order to make an estimate of what the dollar value of royalties withheld would be requires a few reasonable assumptions.

One, to be conservative let’s assume everyone has a 1/8 (12.5%) lease. Second, let’s assume the price per barrel of oil is $50. Third, even though some companies deny charging Postproduction costs (PPC’s), variations in oil prices between companies would suggest otherwise. Let’s use a conservative average PPC of 10% across the entire industry.

Now let’s do the math. North Dakota daily production of 1,400,000 barrels per day (NDIC announced for last month) times 12.5% equals 175,000 barrels per day (bpd) for royalty owners. 175,000 bpd times $50 equals $8,750,000 per day for all royalty owners. $8,750,000 times 10% PPC’s equals $875,000 per day in PPC’s withheld from royalty owners. $875,000 per day times 365 days equals $319,375,000 per year in Postproduction Costs to Royalty Owners.

Just imagine what that money would mean if it were directed to the rightful owners. The State of North Dakota has a royalty interest in 40% of all wells. The private royalty owners would realize tremendous benefits from their mineral interest across North Dakota.

And furthermore, what if the PPC number was at the 35% I referred to earlier. That annual number would grow to $1,117,200,000.

Most private royalty owners are not “participants” in the typical oil and gas lease. PPC’s appear to be a very questionable hybrid that has been created at the insistence of the operators for their benefit. Does it represent a breach of contract?

If you are not happy with your royalty statements ambiguity, or postproduction costs being assessed, maybe you should join Williston Basin Royalty Owners Association (wbroa.com) and help us find the most effective means to stop the garnishing of private royalty owners’ dollars.

I would suggest that any and every legislator reading this letter should begin to question the relationship with the industry and the cost to royalty owners and taxpayers of North Dakota.

I have one question for the industry, what’s wrong with my math?