Royalty Determination Services
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.
Natural Gas and NGLs
Transportation and Processing Unbundling
Unbundled the transportation and processing costs incurred by exploration and production companies for their natural gas production in the Permian Basin, Williston Basin, and Uinta Basin. Estimated capital costs and operating expenses for each function performed by the midstream services provider, including pipeline transportation, inlet separation, 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. Estimated system fuel usage and hydrocarbon losses from condensate.
Royalty Class Action Cases
Assisted in development of expert reports on behalf of gas producers in Oklahoma, New Mexico, and Arkansas in multiple royalty owner class action certification 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
Midstream, Terminals, Distribution
Processing Unbundling
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.