Price: Hedged at Cushing less cost of delivering to Cushing?
There are at least 94 different contracts and hundreds of different grades, based on specific gravity from 11 degree crude(asphaltum) at the LeBrea Tar Pits, to 75 degree condensates from Granite Wash, available at different delivery points in the US/Canada. Gulf Coast contracts are easy to ship offshore and can be easily swapped for Brent(Bonnie Light) contracts. Refiners are the ultimate buyers who post prices for what they will pay for different contracts for delivery. Europe needs Light Sweet Blends, aka Bonnie Brent Light, to make low polluting fuels. ND Light Blend is a premium contract since it is in the 44 Degree Bonnie Light arena. WTI is 38 degreee light sweet crude blend. The refiners and users from Ashpalt Companies to Chemical Companies have men that sit in rooms at computers all day, and buy input stock near their plants. Those contracts have secondary intrinsic value, based on time and quality (futures swaps). WTI 38 contracts are delivered at Cushing, but the trains are going to St. Andrews,LA terminal which can load to ship offshore. Just because the US imports 7 to 8 million barrels per day doesn't mean it doesn't ship lots of crude oil, and refined products. A tanker loaded with Citgo Venz. Heavy, for heavy oil crackers in LA, may leave with LA light for Rotterdam light oil crackers, for example. Those Venz. Heavy contracts were satisfied with maybe ND Light Contacts, that were bought maybe a year ago. It's a back and forth game to see how high they can get the crack spread. There is a winner the crack spread.
Thnks much for your informative response. I do appreciate the full explanation. Perhaps you could answer another question. As a non-operator, I assume that NOG never receives the physical oil from the operator. I also assume that the operator is the marketer of all of the production from a well in which NOG may have a working interest. Is NOG then dependent on the decisions of the operator as to how to transport, where to deliver and the price at which the oil is sold? Thanks again.
Yep, OPERATORS rule, who what and where the oil is picked up delivered and stored. On small royalties NOG gets cash. See all those NOG under 10% royalties most of those are paid in cash. Once the checks get to be over 100K to 500K(which can be also be 2% to 5%,like BP Macando) depending on the operator, NOG can take payment in oil contracts(swaps) where the operator has delivery scheduled, at either a terminal, pipeline intercept point, or refinery. NOG pays maybe 1 to 5 cents to have the contracts transfered to them, from the operator, it varies. Think of farmers and grain elevators, who have a pooled interest in a crop. They not given oil contract they pay for them, in a transaction that does not involve gifting or barter, it's a small Money amount pre agreeed on transaction, they agree to buy their oil from the operator in the form of contracts for a fee. NOG might have a better relationship with a driller, trucker, or pipeline builder, or terminal, than the operator, from experience, or gentlemenly behavior. Oil is a freindly business, it's not like all those bankers they parade across financial TV. A good example would be Statoil from Norway that bought BEXP. NOG might have a lot better relationship with operators, drillers, truckers, or pipelines, than Statoil. NOG and Slawson are tight for example, as early ND guys. NOG would rather let Slawson operate than say Devon or Berry who are mean banking people. But NOG would really like to do business with a private freindly operator like Anshutz, who would keep things friendly and queit, if it is a big well. Whiting is public,so it had to disclose. Anshutz doesn't have to answer to shareholders, with big equity stakes. When interest in well is over 25% then NOG has a say, on a general level, not always, if it is a Major, NO SAY SO. At 37.5 to 50% they have a say on everything with the small operators, who inform then on everything. A major won't always give them a say, but they will keep them informed, day to day or minute to minute. Like you see those Conoco wells in ND they drill you watch if you are NOG. If it is Slawson, NOG and Slawson collaborate.