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From Todd W., Carrollton, OH:
"Is it true that the IRS is frowning on the idea of getting your up front bonus money, from an oil & gas lease, in
multiple yearly payments? Which puts a person in a much lower tax bracket resulting in lower taxes & a
substantial savings verses the one time payment & tax bill."
Response: As far as I know, Todd, there have been no rumblings from the IRS regarding the payout of bonus monies
in one form or another as long as their guidelines are followed. To my understanding, the payment of monies can be
structured in any legal means that are agreed upon by two or more parties and they are taxed accordingly.
Anything more that I can say on the subject would be conjecture. As with all financial matters, I suggest you pose that
question to your tax advisor. And, if you would be so kind, let me know what you find out and I will share it with the
readers of this blog.
___________________________________________________________________________________________
From John S., Kensington,OH:
"I noticed when I drive by several pump jacks on my way to work that sometimes they are pumping and other
times they are not. It also seems that they don't pump very often. Is that because they are at the end of their life
and going dry?"
Response: Some of those wells could be nearing their end and they are slowed to extract the last drop. More likely,
however, is that they are specifically regulated by timed intervals in which they operate to provide the most efficient
extraction of the oil. Pump jacks cannot operate 24/7. Formations would be damaged and oil would be lost.
The rate of extraction is governed by what is known as Most Efficient Recovery Rate (MERR). This is a pre-established
period of time in intervals when the well is pumped and the pump jacks bob up and down. Much of this is governed by
the siphoning effect. A few strokes of the pump can keep the oil flowing for some time after the pump has stopped. So
the strokes of the pump for some duration will keep the oil flowing for a time period where the pump has stopped. It
will start again once a certain pressure level has been reached and the process repeats itself.
One reason that you are not seeing the pump jacks operating that often may be due to the fact that almost all operators
pump at night when electric rates are the lowest, since most oil well pumps are electrically powered. If gas is also
being produced, oftentimes operators will power the pump jacks with the gas from the well.
___________________________________________________________________________________________
From Keith E., New Philadelphia, OH:
"Is the pressure in a natural gas pipeline higher in a smaller diameter pipeline than a larger diameter one?"
Response: A good question, Keith, also asked by other concerned landowners. Pressure is a component of velocity
(the compressor output) and volume (the diameter of the pipeline). If the velocity of a gas going through the pipeline is
kept constant, but the pipeline diameter is reduced, the pressure will be increased - more gas trying to get through a
smaller opening. If the pipe diameter is increased, the pressure will decrease because now there is the same amount
of gas flowing through a larger opening, less resistance.
In the real world, out here in the field, the pressure of gas is governed by the size of the pipeline. The relationship of
both these factors is controlled by government regulation. From a practical standpoint, as the pipeline diameter
increases, the pressure also increases to keep in line with predetermined maximums.
For the pipelines that are being buried in eastern Ohio, an eight inch diameter pipeline will carry gas at a pressure of
around 720 psi, while a sixteen inch pipeline will carry gas at a pressure of 1440 psi. There is a direct correlation
between the pipeline size and the associated pressure. Velocity is changed to regulate the pressure.
Be aware, too, that when the gas flowing through the pipeline hits an elbow to make a turn, additional pressure is
created that has a tendency to want to push back against the source, creating back pressure. However, this
phenomenon is factored into the pressure calculations and the velocity is adjusted accordingly. It generally takes ten
times the length of the elbow for the gas to straighten back out into a smooth spiraling flow. That is one reason bends
in pipelines are avoided where possible.
All oil and gas companies keep their natural gas pressures well below the government requirements. Most times the
pressures are only 60% to 70% of the government rating, building in a large margin of safety. Pipeline safety has
become the first consideration by both the oil and gas companies and our ever-vigilant regulators.
__________________________________________________________________________________________
"Is it true that the IRS is frowning on the idea of getting your up front bonus money, from an oil & gas lease, in
multiple yearly payments? Which puts a person in a much lower tax bracket resulting in lower taxes & a
substantial savings verses the one time payment & tax bill."
Response: As far as I know, Todd, there have been no rumblings from the IRS regarding the payout of bonus monies
in one form or another as long as their guidelines are followed. To my understanding, the payment of monies can be
structured in any legal means that are agreed upon by two or more parties and they are taxed accordingly.
Anything more that I can say on the subject would be conjecture. As with all financial matters, I suggest you pose that
question to your tax advisor. And, if you would be so kind, let me know what you find out and I will share it with the
readers of this blog.
___________________________________________________________________________________________
From John S., Kensington,OH:
"I noticed when I drive by several pump jacks on my way to work that sometimes they are pumping and other
times they are not. It also seems that they don't pump very often. Is that because they are at the end of their life
and going dry?"
Response: Some of those wells could be nearing their end and they are slowed to extract the last drop. More likely,
however, is that they are specifically regulated by timed intervals in which they operate to provide the most efficient
extraction of the oil. Pump jacks cannot operate 24/7. Formations would be damaged and oil would be lost.
The rate of extraction is governed by what is known as Most Efficient Recovery Rate (MERR). This is a pre-established
period of time in intervals when the well is pumped and the pump jacks bob up and down. Much of this is governed by
the siphoning effect. A few strokes of the pump can keep the oil flowing for some time after the pump has stopped. So
the strokes of the pump for some duration will keep the oil flowing for a time period where the pump has stopped. It
will start again once a certain pressure level has been reached and the process repeats itself.
One reason that you are not seeing the pump jacks operating that often may be due to the fact that almost all operators
pump at night when electric rates are the lowest, since most oil well pumps are electrically powered. If gas is also
being produced, oftentimes operators will power the pump jacks with the gas from the well.
___________________________________________________________________________________________
From Keith E., New Philadelphia, OH:
"Is the pressure in a natural gas pipeline higher in a smaller diameter pipeline than a larger diameter one?"
Response: A good question, Keith, also asked by other concerned landowners. Pressure is a component of velocity
(the compressor output) and volume (the diameter of the pipeline). If the velocity of a gas going through the pipeline is
kept constant, but the pipeline diameter is reduced, the pressure will be increased - more gas trying to get through a
smaller opening. If the pipe diameter is increased, the pressure will decrease because now there is the same amount
of gas flowing through a larger opening, less resistance.
In the real world, out here in the field, the pressure of gas is governed by the size of the pipeline. The relationship of
both these factors is controlled by government regulation. From a practical standpoint, as the pipeline diameter
increases, the pressure also increases to keep in line with predetermined maximums.
For the pipelines that are being buried in eastern Ohio, an eight inch diameter pipeline will carry gas at a pressure of
around 720 psi, while a sixteen inch pipeline will carry gas at a pressure of 1440 psi. There is a direct correlation
between the pipeline size and the associated pressure. Velocity is changed to regulate the pressure.
Be aware, too, that when the gas flowing through the pipeline hits an elbow to make a turn, additional pressure is
created that has a tendency to want to push back against the source, creating back pressure. However, this
phenomenon is factored into the pressure calculations and the velocity is adjusted accordingly. It generally takes ten
times the length of the elbow for the gas to straighten back out into a smooth spiraling flow. That is one reason bends
in pipelines are avoided where possible.
All oil and gas companies keep their natural gas pressures well below the government requirements. Most times the
pressures are only 60% to 70% of the government rating, building in a large margin of safety. Pipeline safety has
become the first consideration by both the oil and gas companies and our ever-vigilant regulators.
__________________________________________________________________________________________
Please keep in mind that it is not my intent to offend anyone with the writings herein. Much of the content is presented with tongue-in-cheek purpose with no malicious intent towards anyone or anything. I just call 'em as I see 'em. |
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