Legal Definitions - gas sold

The term "gas sold" in the oil and gas industry refers specifically to the volume of natural gas extracted from a well that is actually delivered to a buyer and for which a commercial transaction takes place. This is a critical distinction because it does not necessarily include all the natural gas that a well produces. Some gas may be used for operational purposes on-site, lost during processing, or vented/flared, and thus never enters the commercial stream as "gas sold." This term is particularly important in natural gas leases, as it often forms the basis for calculating royalties and other payments owed to landowners or other interest holders.

• Royalty Calculation for a Landowner

  Imagine a rancher who owns land where a natural gas company operates a well under a lease agreement. The lease stipulates that the rancher will receive a royalty payment based on a percentage of the "gas sold" from the well. In a particular month, the well extracts 1,200 units of natural gas. However, 100 units are used to power the compressors and other equipment at the well site, and another 50 units are lost due to minor leaks in the processing facility. The remaining 1,050 units are transported via pipeline and sold to a utility company.

  This example illustrates "gas sold" because the rancher's royalty payment would be calculated only on the 1,050 units that were actually sold to the utility company, not the full 1,200 units initially produced. The gas used for operations or lost during processing does not count as "gas sold."

• Company Revenue Reporting

  Consider a publicly traded energy company that operates multiple natural gas fields. When preparing its quarterly financial statements for investors, the company needs to report its revenue accurately. During the quarter, their wells collectively produced 10 million cubic feet of natural gas. However, 500,000 cubic feet were consumed internally to fuel the company's drilling rigs and processing plants, and an additional 200,000 cubic feet were temporarily flared due to an unexpected maintenance shutdown of a connecting pipeline, making it impossible to sell that volume immediately.

  In this scenario, the company's reported revenue and sales figures would primarily reflect the 9.3 million cubic feet of "gas sold" (10 million produced minus 700,000 used/flared). This distinction is crucial for investors to understand the actual commercial output and profitability.

• Fulfilling a Supply Contract

  A natural gas producer has a contract with a large industrial manufacturing plant to supply a minimum of 500,000 cubic feet of natural gas per month. The contract specifies that this volume refers to "gas sold" and delivered to the plant's meter. In one month, the producer's wells extract 600,000 cubic feet of gas. However, due to a temporary operational issue, only 480,000 cubic feet are successfully delivered and metered at the industrial plant, with the remaining 120,000 cubic feet being diverted to another buyer or used internally.

  Here, the producer has only supplied 480,000 cubic feet of "gas sold" to the industrial plant, falling short of their contractual obligation, even though they produced more gas overall. The term "gas sold" specifically defines the volume that fulfills the commercial agreement with that particular buyer.