Oil & Gas Settlement Explanations

If you've ever wondered how Oil and Gas sales are calculated, look at the information below. This general explanation is intended to put in layman’s terms the technical language and numbers used on most Oil and Gas industry Settlement Statements.


What is a Settlement and a Settlement Statement?

A Settlement is the amount of oil and/or gas delivered to a gatherer or purchaser, and this information is detailed in a Settlement Statement. Oil settlements and gas settlements are calculated using various formulas.

What is an Oil Settlement?

Oil is measured in barrels, and one barrel equals 42 gallons. Several factors can significantly affect the quality and quantity of crude oil, which can affect its value. These include temperature, API gravity, and the presence of basic sediment and water (BS&W).

The temperature of the oil in a stock tank is generally close to that of the air surrounding the tank. However, the temperature may be elevated if the oil has just been produced or has been heated in a heater-treater at the gathering system. The temperature of the oil affects its overall volume because, like other fluids, oil expands and contracts in response to temperature changes. To compensate for this, crude oil and product measurement volumes are adjusted to a standard temperature of 60 degrees Fahrenheit.

How is the Price of Oil Calculated?

API gravity refers to a measurement index developed by the American Petroleum Institute which describes how heavy or light oil is in relation to water. API gravity is expressed in degrees. The API gravity of water is 10 degrees. If oil’s API gravity is above 10 degrees, it is considered “light” and will float on water. If the API gravity is less than 10 degrees, the oil is “heavy” and will sink. API gravity determines how much the oil is worth because light oil will produce a higher yield of gasoline or diesel when refined. Essentially, the higher the API number, the better quality of the crude oil and the better the price.

As for how BS&W affects price, some remains in oil even after treatment. Since these are impurities and not part of sellable oil, they must be measured and removed or factored into the value of the crude oil.

Calculating Your Profit from Oil Settlements

Many producing wells in the United States have multiple participants, called interest owners, who help finance the well or field development. Each is entitled to its share of the well’s production. Once oil production is delivered for sale, the final sale volumes and revenues need to be allocated back to the applicable interest owners. Production allocation is the term for this process.

If you want to learn more about production allocation or how the profit from your oil settlement is calculated, contact Crown Exploration today.

What is a Gas Settlement?

There are several variable factors, including monthly production, BTU condition, the current price of gas, contract percentage, waste, and specific gatherer methods of calculation, which can affect the net amount received by the Joint Venture (JV) on gas investments.

Periodically, the gas production from a well is assigned a BTU, or grade, by the gas gatherer. The higher the BTU, the higher the gross dollar amount received [BTU x Thousand Cubic Feet (MCF) = Million British Thermal Units (MMBTU)]. Additionally, the price of gas will fluctuate each month, typically based on a factor of the daily Houston Ship Channel index.

Based on a negotiated contract with the respective gathering company for each separate Joint Venture, the net dollar amount received by the JV ranges from 75% to 85%. The gatherer’s share covers expenses such as line use, collection fees, etc. Some companies take a flat fee, while others make multiple itemized deductions, resulting in the same 75% - 85% net. 

Calculating Your Profit from Gas Settlements

After receiving a gatherer’s detailed statement, our Accounting Department takes the net dollar amount received from the gatherer and divides it by the total monthly sales from the well. The result is an average dollar per MCF received, reported on Venturers’ Joint Interest Billing (JIB) statements.

We hope you’ve found this information about the language and numbers used in most Oil and Gas Settlement Statements helpful. Crown Exploration’s team is always happy to help our Venturers understand their statements and any questions you may have. Visit our Contact Us page to get in touch.

Crown Exploration II, Ltd. assumes no responsibility or liability for any errors or omissions in the content of this document. The information contained in the explanation is provided for educational purposes only with no guarantees of completeness, accuracy, usefulness or timeliness.

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