SJ Basin Coal Bed Methane Gas Royalty Dispute
Conducted independent evaluation and provided expert opinions on behalf of large CBM gas producer in San Juan Basin in response to underpayment claims made by royalty owners. Analyzed use and purposes of gas quality specifications in wellhead purchase and gathering/transportation contracts, quality and composition of production in the basin, usability and consumption of gas prior to treatment or processing, and common practices of producers and midstream companies. Prepared expert report and deposition testimony.
Processing Cost Allowances on NGL Royalties
Provided expert reports and testimony on behalf of twelve major and large independent gas producing companies in Federal Qui Tam litigation. Responded to Relator’s claims to exclude recompression costs from the processing cost allowances allowed by the MMS. Reviewed the design and operation of numerous gas plants, and demonstrated that recompression is integral to the cryogenic turboexpander process and its associated costs were fully deductible.
Gathering and Processing Unbundling
Assisted a midstream company with unbundling of several large transportation and processing systems in response to requests by federal and state governments. Reviewed equipment design and field operations with respect to placing the natural gas into marketable condition. Classified capital costs into appropriate unit operations, including transportation, treating, dehydration, compression and NGL extraction. Served as a resource for the midstream company during an audit by government personnel and organized data for submission to the ONRR.
San Juan Royalty Dispute
Prepared expert reports and testified in Federal court on behalf of major San Juan Basin producer in multiple royalty owner class action trials. Assessed differences and variability in production conditions, required midstream services (including gathering, compression, dehydration, treating, and processing), and product disposition to assist court in determining suitability for class certification.
Unbundled the transportation and processing costs incurred by an exploration and production company for its natural gas production in the Permian Basin. Estimated capital costs and operating expenses for each function performed by the midstream services provider, including compression, treating and NGL extraction. Evaluated the operating conditions of each function and assessed their effect on the marketable condition of the natural gas as it pertains to determining allowable deductions from royalty payments.
Offshore Federal Lease Audit
Unbundled the processing costs incurred by an exploration and production company for its offshore natural gas production in the Gulf of Mexico. Evaluated the operating conditions of each function performed at the NGL extraction facility. Estimated capital costs and operating expenses for each function and determined the percentage of the costs that are deductible from federal royalty payments.
Crude Oil Royalty Dispute
Determined economic damages due over riding royalty owner in offshore OCS leases who had a “same as Fed” payment provision. Evaluated reported oil and gas product volumes, product pricing, federal allowable transportation and processing deductions, and late payment interest. Prepared expert report on calculated damages over the disputed period.
Beginning with the deregulation or “unbundling” of the natural gas pipeline industry in the 1980s, the valuation of natural gas and NGL for royalty purposes has become a contentious issue between producers and royalty interest owners.
This trend began with affiliate transactions that became necessary as traditional sales to pipelines ended, and the trend accelerated with the growth of an independent midstream market for transportation, processing, and marketing services.
Watson Millican & Co. consultants have provided expert testimony on natural gas market value and net proceeds. We have also testified on the reasonableness of post-production costs and processing cost allowances, and the fairness of percent-of-proceeds agreements.