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Lower Natural Gas Prices = Smaller Gas Royalty Checks in 2012?

by Kenneth E. DuBose on December 28, 2011

Natural gas prices have not been on a healthy trend for the industry and mineral owners. While our heating bills are getting cheaper, companies are slowly being forced to move more rigs to oil and liquids targets as natural gas prices fall.

Natural gas prices have fallen from over $13/mmbtu in 2008 to almost $3/mmbtu at the end of December 2011. The low in prices is also coming at a time in the year when prices usually bounce as cold weather rolls into the country. While we’re only a few days into the official winter, some gas utilities and storage facilities are required to begin pulling gas from storage. That means more supply is coming into the market and without an event that triggers higher demand we’re likely in for OVER-supply for the coming year.

The current NYMEX 12-month strip is a puny $3.38/mmbtu. That’s close to a 20% drop from the average over the past 12-month period. In other words, royalty checks on your gas properties will likely be 20% lower than last year.

While our heating bills will benefit in the winter, fewer jobs will be created in the gas side of the business. We strongly believe the oil & gas industry has the potential to help lead this economy out of the lows of the past three years.

To make the largest impact possible, we likely need natural gas prices in the $5/mmbtu range. That is what many operators have pinpointed as a price that allows for further development without simultaneously hurting the economy. It’s also a price that will add to mineral owners pockets at a much faster rate than $3….

You can always estimate your royalty checks with current gas prices at our Natural Gas Royalty Calculator. Remember – the calculation does not account for severance, ad valorem, or income taxes.

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