**Understanding Settlements and Settlement Statements in the Oil and Gas Industry**
A Settlement refers to the quantity of oil and/or gas delivered to a gatherer or purchaser, and the specifics of this transaction are documented in a Settlement Statement. The calculation of oil and gas settlements involves various formulas tailored to industry standards.
**Oil Settlement Explained**
Oil is quantified in barrels, with one barrel equating to 42 gallons. Several factors, such as temperature, API gravity, and the presence of basic sediment and water (BS&W), can significantly influence the quality and volume of crude oil, thus impacting its market value.
The oil’s temperature in a stock tank typically matches the ambient air temperature, though it can be higher if the oil is freshly produced or heated in a heater-treater within the gathering system. Temperature variations affect oil volume due to expansion and contraction, necessitating adjustments to a standard temperature of 60 degrees Fahrenheit for accurate measurement.
**Determining Oil Prices**
API gravity, developed by the American Petroleum Institute, measures the density of oil relative to water. Expressed in degrees, an API gravity above 10 indicates “light” oil, which floats on water, while below 10 signifies “heavy” oil, which sinks. Higher API gravity suggests better quality oil, yielding more gasoline or diesel upon refining, thus commanding a higher price.
BS&W presence affects pricing as these impurities, which are not part of sellable oil, must be quantified and deducted from the crude oil’s value.
**Profit Calculation from Oil Settlements**
In the United States, many oil wells involve multiple stakeholders, known as interest owners, who finance the well or field development. These stakeholders are entitled to their share of production. After oil is sold, the final sale volumes and revenues are allocated among the interest owners, a process termed production allocation.
For further insights into production allocation or profit calculations from oil settlements, please contact VP operating.
**Gas Settlement Overview**
Gas settlements are influenced by factors such as monthly production, BTU content, current gas prices, contract percentages, waste, and specific gatherer calculation methods. These factors determine the net amount received by the entity on gas investments.
Gas gatherers periodically assign a BTU grade to well production. A higher BTU results in higher gross revenue [BTU x Thousand Cubic Feet (MCF) = Million British Thermal Units (MMBTU)]. Gas prices fluctuate monthly, typically based on the daily Houston Ship Channel index.
Negotiated contracts with gathering companies determine the net revenue received by the entity, usually ranging from 75% to 85% of the gross amount. This accounts for expenses like line use and collection fees, with some companies applying a flat fee and others itemizing deductions.
**Profit Calculation from Gas Settlements**
Upon receiving a gatherer’s detailed statement, our Accounting Department calculates the average dollar per MCF received by dividing the net dollar amount by the total monthly sales from the well. This figure is reported on investors’ Joint Interest Billing (JIB) statements.
We trust this explanation of the terminology and calculations used in Oil and Gas Settlement Statements is helpful. VP Operating is committed to assisting our investors in understanding their statements and addressing any inquiries. Please visit our Contact Us page for further assistance.
