2018-174 Receipt and Use of Gas Well RevenueDate: December 7, 2018 Report No. 2018-174
INFORMAL STAFF REPORT
TO MAYOR AND CITY COUNCIL
SUBJECT:
Details regarding the City’s receipt and use of gas well revenue.
BACKGROUND:
The City Council requested information on gas well revenue history and how that funding has been
used. The City has three gas well funds: the Airport Gas Well Fund, Parks Gas Well Fund, and
Other Gas Well Fund.
DISCUSSION
Revenue and expenditure information related to each of the City’s three gas well funds is attached
to this report. In general, the City’s gas well revenues have diminished substantially due to both a
decrease in gas production, which is normal for gas wells, and lower gas prices. Gas wells are
unlikely to see an increase in gas production, so even if gas prices rise, the only increase in royalty
revenue would be from additional gas wells that may be drilled on city-owned property. There are
currently no plans to drill additional gas wells on city-owned property. Data available is through
Fiscal Year (FY) 2016-17 as funds are currently being reconciled for FY 2017-18.
Airport Gas Well Fund
Attachment 1 provides the revenue and expenditure history for the Airport Gas Well Fund dating
back to FY 2004-05. This fund is the City’s largest gas well revenue fund and it had a fund balance
of $4,479.231 in FY 2016-17. The Airport Gas Well Fund is used to fund capital projects at the
Denton Enterprise Airport. Attachment 2 outlines the Airport capital projects that were funded
from the Airport Gas Well Fund. Federal law requires that this revenue only be used for the benefit
of the Airport.
Parks Gas Well Fund
Denton has six gas well pad sites, consisting of 14 well heads that provide revenue to city parks.
All pad sites are located on private property and not Park property in what are commonly referred
to as pooling arrangements. Minerals under Park property are accessed through horizontal drilling.
Royalties from these gas pooling arrangements are maintained in the Parks Gas Well Fund. In FY
2016-17, the Parks Gas Well Fund had a fund balance of $104,371. Attachment 3 includes a
history of the Parks Gas Well Fund balance and a detailed expenditure report listing of the capital
projects that have been funded using revenue from the Parks Gas Well Fund. Attachment 4 is an
Informal Staff Report that was provided to the City Council on July 27, 2018, outlining parks gas
well locations, mineral interest percentages, and revenue. State law requires that this revenue only
be used for the benefit of the City’s park system.
Other Gas Well Fund
The Other Gas Well Fund includes revenue from a single gas pooling agreement, consisting of 10
acres under Vintage Road. Attachment 5 provides a year-by-year breakdown of the fund balances
Date: December 7, 2018 Report No. 2018-174
and a list of the capital expenditures made out of this fund. Because of the low fund balance, staff
plans to close out this fund this year.
ATTACHMENTS
1. Airport Gas Well Revenues & Expenditures
2. Airport Gas Well Fund Capital Projects Detail
3. Parks Gas Well Fund Revenue and Expenditures
4. 2018-094 Parks Gas Well Funds
5. Other Gas Well Fund Revenue and Expenditures
STAFF CONTACT:
Antonio Puente, Jr., Chief Financial Officer
(940)-349-7283
Antonio.Puente@cityofdenton.com
City of DentonAirport Gas Well Fund1Schedule of Revenues & Expenditures For the Period Ended September 30, 2017FY 2004-05 FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15 FY 2015-16FY 2016-17DESCRIPTIONACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUALACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUALREVENUES: Royalties2619,842$ 1,323,993$ 1,233,849$ 1,108,335$ 807,847$ 4,124,918$ 2,389,035$ 1,216,740$ 1,162,508$ 1,023,526$ 581,848$ 478,310$ 606,518$ Surface Agreements25,057 43,299 25,559 13,952 48,526 15,152 15,152 9,152 13,952 13,952 - - - Interest Income- 17,517 108,150 90,717 110,827 32,049 28,879 34,336 23,149 26,153 27,708 26,225 34,141 Total Revenues644,898$ 1,384,808$ 1,367,558$ 1,213,005$ 967,200$ 4,172,120$ 2,433,066$ 1,260,228$ 1,199,609$ 1,063,631$ 609,556$ 504,535$ 640,659$ EXPENDITURES: Return on Investment - General Fund-$ -$ -$ -$ -$ -$ 27,973$ 15,239$ -$ -$ -$ -$ -$ Franchise Fees - General Fund- - - - - - 39,962 34,800 36,022 37,853 34,778 35,268 - Grant - City Match- - - - - 49,836 62,674 61,718 56,006 49,891 50,000 50,000 50,000 Professional Services- - 39,905 17,692 80,996 65,607 60,778 5,327 - - - 2,400 3,105 Marketing- - - - - - - 30,082 - - - 3,500 5,699 Interest- - - - - - - - 77,605 151,753 204,777 - - Transfer to Debt Service- 206,777 255,437 228,750 221,993 216,987 224,815 219,455 - - - 475,790 - Transfer to General Fund (Indirect Costs)51,038 - - - - 973,582 178,124 178,124 294,997 381,338 - 367,890 - Transfer to Capital Projects3- 185,000 - - 1,300,000 1,210,900 654,125 479,160 1,000,000 816,636 1,204,276 169,835 - Transfer to Other Funds (Indirect Costs)- - - - - - - - 16,030 29,340 - - - Total Expenditures51,038$ 391,777$ 295,342$ 246,442$ 1,602,989$ 2,516,912$ 1,248,451$ 1,023,905$ 1,480,660$ 1,466,811$ 1,493,830$ 1,104,683$ 58,804$ Net Income (Loss)593,860$ 993,031$ 1,072,217$ 966,563$ (635,789)$ 1,655,208$ 1,184,615$ 236,323$ (281,051)$ (403,180)$ (884,274)$ (600,148)$ 581,855$ Beginning Unreserved Fund Balance-$ 593,860$ 1,586,892$ 2,659,108$ 3,625,671$ 2,989,882$ 4,645,090$ 5,829,705$ 6,066,028$ 5,784,978$ 5,381,798$ 4,497,524$ 3,897,376$ Ending Unreserved Fund Balance593,860$ 1,586,892$ 2,659,108$ 3,625,671$ 2,989,882$ 4,645,090$ 5,829,705$ 6,066,028$ 5,784,978$ 5,381,798$ 4,497,524$ 3,897,376$ 4,479,231$ 1Federal law restricts the use of these revenues for Airport expenses only.2Royalties from 10 gas wells located on Airport property and 1 gas pooling agreement.3Detailed capital project listing attached.Grant agreements with the State and Federal government used in acquistion of Aiport land or construction of Airport infrastructure restrict these revenues. "All fees collected for the use of an airport or navigational facility constructed with funds under the program...shall be used solely for the development, operation, and maintenance of the [City's] system of airports or navigational facilities." "Any revenue from airport property mineral rights [should] be identified as Airport revenue and deposited to the Airport Fund and used for airport operations."
City of Denton
Airport Gas Well Fund1
Detail of Capital Projects Funded with Airport Gas Well Revenues
As of the Period Ended September 30, 2017
Description Amount
Airport Master Plan 2014 153,601
Taxiway - Apron 185,000
Airport Terminal Expansion 119,000
Airport Drainage Improvements 80,551
Runway Extension 530,159
Airport Tower Improvements 150,769
Southeast Taxiway 315,989
C. Wolf Road/Runway Extension 323,182
Security Fence 155,794
Tractor - 90HP 93,551
Airport Entrance 85,773
Southeast Access Road 603,336
USAG Ramp and Parking 340,986
Apron Construction & Paving 118,376
2010 Maintenance Facility 542,932
Airport Signage 63,364
2018 Airport Road Paving 1,075,392
Airport Utility Tractor 63,019
Airport Tractor Accessories 4,276
Airport Terminal Meeting Room Equipment 12,118
Utility Extensions and Looping 301,643
Airport Entrance Drainage 98,366
Airport Entrance Road Construction 373,248
Hangar Development - South End 40,000
Hangar Development - Taxilane Quebec 806,354
Land Acquisition - Cook Property 31,920
Parallel Runway - West Side 117,151
Airport Mower 16,313
Airport Tow-Pro Spreader 10,026
Airport Snow Wing Equipment 24,768
Airport Tractor 49,682
Land Acquisition - Porter 62,494
Land Acquisition - Cole 52,948
Airport Master Plan 2017 12,001
Airport Unallocated 5,850
Total 7,019,932
City of DentonParks Gas Well Fund1Schedule of Revenues & Expenditures For the Period Ended September 30, 2017FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15 FY 2015-16FY 2016-17DESCRIPTIONACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUALACTUALREVENUES: Royalties250,339$ 431,734$ 472,236$ 218,782$ 163,409$ 321,937$ 172,268$ 99,308$ 97,726$ Interest Income- 2,257 2,645 3,471 1,080 173 1,340 1,047 1,072 Transfer from Other Gas Well Fund- 1,205,046 - - - - - - - Total Revenues50,339$ 1,639,037$ 474,881$ 222,253$ 164,489$ 322,110$ 173,608$ 100,355$ 98,798$ EXPENDITURES: Transfer to Capital Projects - Water Park Slide Replacement-$ 350,000$ -$ -$ -$ -$ -$ -$ -$ Transfer to Capital Projects - Senior Center Land Purchase- 150,000 - - - - - - - Transfer to Capital Projects - North Lakes Soccer Fields- 850,000 - - - - - - - Transfer to Capital Projects - Mack Park Property purchase- - 53,000 - - - - - - Transfer to Capital Projects - North Lakes Bleachers- - - 15,000 - - - - - Transfer to Capital Projects - Mack & Milam Park Land Purchase- - - 90,000 - - - - - Transfer to Capital Projects - Mack Park Score Boards- - - 10,000 - - - - - Transfer to Capital Projects - Water Park Shade Covering- - - 15,000 - - - - - Transfer to Capital Projects - Adult Soccer Field - - - 95,000 - - - - - Transfer to Capital Projects - Water Park River Pump- - - 15,000 - - - - - Transfer to Capital Projects - Evers Park Irrigation- - - 60,000 - - - - - Transfer to Capital Projects - Quaker Town Park Irrigation- - - 50,000 - - - - - Transfer to Capital Projects - North Lakes Property Purchase- - - - 500,000 - - - - Transfer to Capital Projects - Golf Driving Range Improvements- - - - 197,999 - - - - Transfer to Capital Projects - Adult Soccer Field - - - - 100,000 - - - - Transfer to Capital Projects - Water Park Concession Stand- - - - - 45,500 - - - Transfer to Capital Projects - Denia Athletic Fields- - - - - 40,000 - - - Transfer to Capital Projects - Vela Soccer Complex- - - - - 55,000 200,000 150,000 100,000 Transfer to Capital Projects - American Legion Hall Renovation- - - - - - - - - Transfer to Capital Projects - Softball Fields and North Dog Park- - - - - - - - - Total Expenditures-$ 1,350,000$ 53,000$ 350,000$ 797,999$ 140,500$ 200,000$ 150,000$ 100,000$ Net Income (Loss)50,339$ 289,037$ 421,881$ (127,747)$ (633,510)$ 181,610$ (26,392)$ (49,645)$ (1,202)$ Beginning Unreserved Fund Balance-$ 50,339$ 339,376$ 761,257$ 633,510$ -$ 181,610$ 155,218$ 105,573$ Ending Unreserved Fund Balance50,339$ 339,376$ 761,257$ 633,510$ -$ 181,610$ 155,218$ 105,573$ 104,371$ 1State law restricts the use of these revenues for parks expenses only. In addition, State law prohibits the use of park surface to parks purposes only. As such, there are no gas wells drilled directly on park land.2Royalties from gas pooling agreements associated with the following parks: Airport Open Space Park, North Lakes Park, Vintage, Lake Forrest Park, Wiggly Field, and Cross Timbers Park.Grant agreements with the State and Federal government used in acquistion of City park land restricts the use of these revenues. "The [City] shall not at any time convert any property acquired or developed pursuant to this agreement to other than the public outdoor recreation uses specified in the project proposal...without prior approval of the Director [of United States Department of the Interior]."
Date: July 27, 2018 Report No. 2018-094
INFORMAL STAFF REPORT
TO MAYOR AND CITY COUNCIL
SUBJECT:
The purpose of this report is to provide the City Council with details regarding the City’s parks
gas wells.
BACKGROUND:
During the July 17th Council meeting there were questions asked about gas wells producing
royalties in the City’s parks. This report will provide a detailed explanation of the parks gas
wells, their location, mineral interest rates, and revenue.
DISCUSSION:
Denton has six gas well pad sites consisting of 14 well heads that provide revenue to city parks.
All gas well pad sites are located off of park land and use horizontal drilling to access minerals
below the parks. The appropriable fund balance as of September 30, 2017 is $104,371. Attached
is a financial statement as of 9-30-17 for the Parks Gas Well Fund and includes the FY 2018-19
Proposed Budget.
The royalty percentage for the wells ranges from 18.75% to 25% however the city does not
receive that amount in payments. Each well head has a pooling agreement in which the rights of
many different mineral owners are combined into pools large enough to extract minerals. The
City is paid royalties based on the net revenue interest (NRI) which is calculated by dividing the
number of acres the City has by the total number of acres in the pool then multiplying by the
royalty percentage. The table below outlines the well’s name, associated park, royalty percent,
and NRI.
Parks Gas Wells Location and Royalty Rates
Name Park Royalty % NRI
Acme 1H Lake Forrest/Wiggly Field/Cross Timbers 25% .03354489
Acme 2H Lake Forrest/Wiggly Field/Cross Timbers 25% .03354489
Acme 3H Lake Forrest/Wiggly Field/Cross Timbers 25% .03354489
Acme 4H Lake Forrest/Wiggly Field/Cross Timbers 25% .03354489
Meredith 1 Lake Forrest/Wiggly Field/Cross Timbers 25% .01548882
Parks Unit 1H North Lakes Park 21% .14862463
Parks Unit 2H North Lakes Park 21% .14862463
Underwood Breen 1H Airport Open 20% .02539863
Underwood Breen 2H Airport Open 20% .02539863
Rayzor West 12H-1 Airport Open 22.5% .00664086
Rayzor West 12H-2 Airport Open 22.5% .00664086
Rayzor West 12H-3 Airport Open 22.5% .00664086
Rayzor West 12H-4 Airport Open 22.5% .00664086
Denton CJW 1 Vintage Open Space 18.75% .00208743
Date: July 27, 2018 Report No. 2018-094
The Acme and Meredith pad sites are located to the southeast of Lake Forrest Park. The Parks
Unit pad site is across from Fire Station 5 on the west side of N. Bonnie Brae St. The
Underwood Breen 1H and 2H pad sites are located off of Airport Rd. just east of the Airport. The
Rayzor West 12H pad site is located off of Airport Rd. behind ReaderLink and the Denton CJW
1 pad site is located north of 2449 (Vintage Blvd.) and west of I-35W.
Please do not hesitate to contact me if you have any further questions about the city’s park’s gas
well royalties.
ATTACHMENTS:
Parks Gas Well Financial Statement
STAFF CONTACT:
Antonio Puente, Jr., Director of Finance
(940)-349-7283
Antonio.Puente@cityofdenton.com
City of Denton
Parks Gas Well Fund1
Schedule of Revenues & Expenditures
For the Period Ended September 30, 2016
FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19
DESCRIPTION ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL BUDGET PROPOSED
REVENUES:
Royalties2 50,339$ 431,734$ 472,236$ 218,782$ 163,409$ 321,937$ 172,268$ 99,308$ 97,726$ 50,000$ 29,200$
Interest Income - 2,257 2,645 3,471 1,080 173 1,340 1,047 1,072 1,000 800
Transfer from Other Gas Well Fund - 1,205,046 - - - - - - - - -
Total Revenues 50,339$ 1,639,037$ 474,881$ 222,253$ 164,489$ 322,110$ 173,608$ 100,355$ 98,798$ 51,000$ 30,000$
EXPENDITURES:
Transfer to Capital Projects - Water Park Slide Replacement -$ 350,000$ -$ -$ -$ -$ -$ -$ -$ -$ -$
Transfer to Capital Projects - Senior Center Land Purchase - 150,000 - - - - - - - - -
Transfer to Capital Projects - North Lakes Soccer Fields - 850,000 - - - - - - - - -
Transfer to Capital Projects - Mack Park Property purchase - - 53,000 - - - - - - - -
Transfer to Capital Projects - North Lakes Bleachers - - - 15,000 - - - - - - -
Transfer to Capital Projects - Mack & Milam Park Land Purchase - - - 90,000 - - - - - - -
Transfer to Capital Projects - Mack Park Score Boards - - - 10,000 - - - - - - -
Transfer to Capital Projects - Water Park Shade Covering - - - 15,000 - - - - - - -
Transfer to Capital Projects - Adult Soccer Field - - - 95,000 - - - - - - -
Transfer to Capital Projects - Water Park River Pump - - - 15,000 - - - - - - -
Transfer to Capital Projects - Evers Park Irrigation - - - 60,000 - - - - - - -
Transfer to Capital Projects - Quaker Town Park Irrigation - - - 50,000 - - - - - - -
Transfer to Capital Projects - North Lakes Property Purchase - - - - 500,000 - - - - - -
Transfer to Capital Projects - Golf Driving Range Improvements - - - - 197,999 - - - - - -
Transfer to Capital Projects - Adult Soccer Field - - - - 100,000 - - - - - -
Transfer to Capital Projects - Water Park Concession Stand - - - - - 45,500 - - - - -
Transfer to Capital Projects - Denia Athletic Fields - - - - - 40,000 - - - - -
Transfer to Capital Projects - Vela Soccer Complex - - - - - 55,000 200,000 150,000 100,000 - -
Transfer to Capital Projects - American Legion Hall Renovation - - - - - - - - - 100,000 -
Transfer to Capital Projects - Softball Fields and North Dog Park - - - - - - - - - - 50,000
Total Expenditures -$ 1,350,000$ 53,000$ 350,000$ 797,999$ 140,500$ 200,000$ 150,000$ 100,000$ 100,000$ 50,000$
Net Income (Loss)50,339$ 289,037$ 421,881$ (127,747)$ (633,510)$ 181,610$ (26,392)$ (49,645)$ (1,202)$ (49,000)$ (20,000)$
Beginning Unreserved Fund Balance -$ 50,339$ 339,376$ 761,257$ 633,510$ -$ 181,610$ 155,218$ 105,573$ 104,371$ 55,371$
Ending Unreserved Fund Balance 50,339$ 339,376$ 761,257$ 633,510$ -$ 181,610$ 155,218$ 105,573$ 104,371$ 55,371$ 35,371$
1State law restricts the use of these revenues for parks expenses only. In addition, State law prohibits the use of park surface to parks purposes only. As such, there are no gas wells drilled directly on park land.
2Royalties from gas pooling agreements associated with the following parks: Airport Open Space Park, North Lakes Park, Vintage, Lake Forrest Park, Wiggly Field, and Cross Timbers Park.
City of DentonOther Gas Well Fund1Schedule of Revenues & Expenditures For the Period Ended September 30, 2016 FY 2004-05 FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15 FY 2015-16FY 2016-17DESCRIPTIONACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUALREVENUES: Royalties2-$ 37,939$ 79,374$ 1,146,098$ 362,467$ 7,646$ 11,502$ -$ -$ -$ -$ -$ -$ Surface Agreements- 26,248 10,023 55,803 - - - - - - - - - Interest Income - 9,781 43,558 54,416 79,431 29,474 11,857 2,447 148 148 - - - Transfer from General Fund - Prior Year Royalties101,172 - - - - - - - - - - - - Transfer from General Fund - Property Taxes/Sales Taxes- 415,787 454,263 431,090 463,568 - - - - - - - - Total Revenues101,172$ 489,755$ 587,218$ 1,687,407$ 905,466$ 37,120$ 23,359$ 2,447$ 148$ 148$ -$ -$ -$ EXPENDITURES: Transfer to Capital Projects - Denton Co. Tax Office Building Project- - - - - - 50,000 1,000,000 - 36,279 - - - Transfer to Capital Projects - Denton Comprehensive Plan- - - - - - - 600,000 - - - - - Transfer to Capital Projects - Laserfiche Software- - - - - 250,000 - - - - - - - Transfer to Capital Projects - Planning ProjectDox Software- - - - - 350,000 - - - - - - - Transfer to Capital Projects - ITS Comm Truck Lines, TXDOT- - - - - - 342,900 - - - - - - Transfer to Parks Gas Well Fund- - - - - 1,205,046 - - - - - - - Total Expenditures-$ -$ -$ -$ -$ 1,805,046$ 392,900$ 1,600,000$ -$ 36,279$ -$ -$ -$ Net Income (Loss)101,172$ 489,755$ 587,218$ 1,687,407$ 905,466$ (1,767,926)$ (369,541)$ (1,597,553)$ 148$ (36,131)$ -$ -$ -$ Beginning Unreserved Fund Balance-$ 101,172$ 590,927$ 1,178,145$ 2,865,552$ 3,771,018$ 2,003,092$ 1,633,551$ 35,998$ 36,146$ 15$ 15$ 15$ Ending Unreserved Fund Balance101,172$ 590,927$ 1,178,145$ 2,865,552$ 3,771,018$ 2,003,092$ 1,633,551$ 35,998$ 36,146$ 15$ 15$ 15$ 15$ 1This fund to be closed in FY 2017-18 as a result of dimished royalties and zero fund balance.2Royalties from 1 gas pooling agreement associated with Vintage Parkway.