Many states have passed ‘aggregate’ pay laws that allow producers to accumulate royalty obligations up to a specified amount before making payment to owners. In most states, aggregate payment amounts stand at $100; however, in many cases, owners can request (in writing) payment for amounts over $25. Annual payments for any amounts greater than $10 are also provided for by many state regulations.
Gasoline prices are impacted by a number of factors, including changes in the price of crude oil, supply and demand, change in fuel specifications, government regulations, taxes and transportation costs. Actual or perceived changes in these fundamentals, such as those caused by geopolitical uncertainty, can have an impact on commodity markets. Therefore, it is important to recognize that a number of factors may combine to impact transportation fuel prices at any given time.
Methodology For Gasoline and Diesel Fuel Pump Components
The components for the gasoline and diesel fuel pumps are calculated in the following manner in cents per gallon and then converted into a percentage:
Crude Oil – the monthly average of the composite refiner acquisition cost, which is the average price of crude oil purchased by refiners.
Refining Costs & Profits – the difference between the monthly average of the spot price of gasoline or diesel fuel (used as a proxy for the value of gasoline or diesel fuel as it exits the refinery) and the average price of crude oil purchased by refiners (the crude oil component).
Distribution & Marketing Costs & Profits – the difference between the average retail price of gasoline or diesel fuel as computed from EIA’s weekly survey and the sum of the other 3 components.
Taxes – a monthly national average of federal and state taxes applied to gasoline or diesel fuel.
It should be noted that the second and third components can vary widely, depending on the time when the components are being calculated. Since there is typically a lag between when the spot price changes to when the retail price changes, the refining costs & profits component and the distribution & marketing costs & profits component can vary from month to month. For example, as prices increase on the spot market, often the retail prices take time to adjust. Thus, at this point in the cycle, the refining costs & profits component (assuming no corresponding increase in crude oil prices) would be relatively large while the distribution & marketing costs & profits component would be relatively small. However, later on, as retail prices “catch-up” with the previous spot price increases, the distribution & marketing costs & profits component would increase while the refining costs & profits component would decrease.
–Department of Energy
Attention Kansas Royalty Owners:
Section 55-1622 of the Kansas Statutes gives an owner of a royalty interest in oil or gas produced in Kansas the right to specifically request any of the following information from a payor about the owner’s royalty payment and the wells for which is made:
• Each lease and name
• Property or well identification number used by the payor for royalty payment purposes
• The field name
• Total produced volume for a given sales period
• Listing of the amount and purpose of deductions or adjustments from the royalty owner’s share of the sale not identified on the payment statement
• Whether any payments reported are from a split-stream sale
• Whether the sale of any of the production for which payment is made by payor has been made to an affiliate of the payor
The request by the royalty owner must be made in writing, specifying the information desired and the sales period or periods for which the information is needed. The payor must respond to such a request by certified mail not later than the 60th day after the date of the request is received. For more information on this law, please refer to the Kansas legislation website.
Attention Texas Royalty Owners:
Section 91.504, Texas Natural Resources Code, gives an owner of a royalty interest in oil or gas produced in Texas the right to request from a payor information about the following that may not have been provided to the royalty interest owner:
• Itemized deductions
• The heating value of the gas
• The Railroad Commission of Texas’ identification number for the lease, property, or well
The request must be in writing and must be made by certified mail. A payor must respond to this request by certified mail not later than the 60th day after the date the request is received. Additional information regarding production and related information may be obtained by contacting the Railroad Commission of Texas’ Office of Public Assistance or accessing the Commission’s website.
Understanding the Demand
Unless you have spent the greater part of the past two years living under a rock or have been lost wandering in the wilderness, you have been inundated with a tremendous amount of information about oil, barrels of oil and the costs of barrels of oil. Of course, you have seen the final effect of the high price of a barrel of oil each time you pull into the local gasoline station to fill up … perhaps halfway … your automobile tank. With all that said, and having heard so much about barrels of oil in recent months, you may not even know what, exactly, is contained in a barrel of oil.
The standard barrel contains 42 U.S. gallons of crude oil. What is truly interesting about the refinement of a typical barrel is that the 42 gallons of crude oil will result in more than 44 gallons of petroleum products. In other words, during the refinement process, there is actually an increase in the volume of product realized. This occurs because there is a reduction in the density of some of the original crude oil as different petroleum products are created during the refinement process.
The refining process actually is rather simple. At its essence, refinement involves the distillation of crude oil into its constituent elements. After distillation, conversion occurs — which is the process of “cracking’ molecules to allow for a further refinement of the elements that form crude oil in the first instance. Finally, enhancement occurs. This is a process through which the quality of the ultimate product is enhanced in various ways. For example, sulfur might be removed to increase or enhance the quality of a product refined from crude oil.
The largest share of the 42 gallons of crude oil contained in a standard barrel ends up as finished motor gasoline. Motor gasoline accounts for 19.65 gallons of the finished product. Next in line is distillate fuel oil at 10.03 gallons.
Jet fuel comes in a rather distant third place in the refinement process. Of the original 42 gallons of crude oil in a barrel, that portion which will end up as jet fuel is 4.07 gallons. Residual fuel oil accounts for 1.72 gallons of the overall refined product.
Other petroleum products that are created from a barrel of oil during the refining process include: still gas, petroleum coke, liquefied refinery gas, asphalt and road oil, various oils for foodstocks, lubricants, special napthas, kerosene, waxes and an assortment of other miscellaneous products. (It is important to note that the different end products that can be produced from a barrel of oil differ in their percentages depending on what part of the world the crude oil originated from in the first instance.)
In reality, when you consider what is produced through the refinement process, it is hard to imagine another substance on the planet that can result in as many different products as does crude oil when refined. There is no exaggeration in saying that crude oil – after refinement – touches nearly every area of a person’s life…indeed, in many different ways.