Cracker plants and Market Enhancement Clause..what's the connection or is there any? (if you have a Mkt. Enh. clause you best read thru this discussion)

Replies to This Discussion

Permalink Reply by USA Landowner on February 18, 2012 at 10:38am

just found that our land is in a unit as big as 1,100 acres (but only a fraction of the land is in the unit not all the acreage of the parcel)....

now with a lower royalty percentage than today's great offers, a very large unit (that can be adj.), and a clause that misconstrues the 'enhancement clause' to Lessor paying all enhancement costs rather than shared costs (the fact that the word 'proportionate' was left out whether intentionally or a typo still not known) (read our above posts people so you know what that means)....I would say it is better to hire a gas/oil attorney  (and some did hire attys but they didn't even know some of this stuff) then proceed as if the oil company didn't present you with an unfair one sided contract which they did. 

 I don't know if it will take a attorney to sort this out for us with the oil company but I surely do know that it is best to read this discussion if you have that clause til you thoroughly understand the market enhancement clause on your contract...especially if your land is in a unit and you have yet to see the royalty checks.

I have now learned that we have no idea if 'enhancement' only relates to using a Cracker plant (not yet installed in Pa) or if it means what you posted recently above...past the wellhead.

hey, i looked under 'market enhancement' on google search and this discussion from here was there"

http://www.gohaynesvilleshale.com/group/chesapeake-energy/forum/top...  (it's amazing how few will take the time to read about what affects their royalty share cost in those prev. discussions from 2010 and 2011 I found.)

• ▶ Reply

Permalink Reply by Forrest on March 2, 2012 at 11:00am

 

It would seem that the first marketable product is when the stream from the wellhead is developed into a commodity.  A commodity that is traded on the open market.   Anything prior is processing - not deducted from gross royalty calculation.  Anything after is enhancing - cost/profit shared based on royalty %.  Ethane a commodity enchanced into ethylene.

• ▶ Reply

Permalink Reply by USA Landowner on March 3, 2012 at 12:45am

Hi Forrest..

but the question is...when does the product go to making ethane and is that a normal everyday process of the production of NG....or does that only apply when being sent to a Cracker plant (if one is near enough) and what charges would the market enhancement clause raise if your contract either has the Lessor paying ALL the costs...or half the costs?   See if it is a shared cost then the Lessor will still stand to make more profit (we think)...but if it is a FULL charge to the Lessor then that is totally unfair.   And if the production costs of enhancement all start at the wellhead then isn't that really a 'Net' royalty contract?

Permalink Reply by Forrest on March 3, 2012 at 8:24am

VG,

 

I think any royalty % applied to the wellhead price can not be a gross royalty lease.  My understanding is that the wellhead price has already been adjusted downward for some post production cost.  So on a gross royalty lease the non-enhanced (base royalty) price needs to be determined.  Ask the producer the royalty paid if they elect not to enhance the product.  If they say wellhead, then I would ask what is the difference between a net and gross lease.   Once the non-enhanced point is determined cost/profit after that point are shared based on ownership - royalty of 21% then producer 79% and mineral owner 21%.

Permalink Reply by USA Landowner on March 3, 2012 at 8:46pm

thanks..Forrest, have you taken the time to read this entire discussion?   It is really like my last recent post states...we really don't know what the oil company will do and those that do have royalties and market enhancement clauses are more than welcome to post what they are discovering about the 'enhancement clause'.  My great concern is that my contract doesn't use the word 'proportional' in the statement of who pays the enhancement costs....I think upon examination of their leases there are more people that have lease statements like I have on their lease addendum...pls review your lease people regarding that market enhancement clause...it may be the trick clause that prevents you from having a true Gross royalty.

• ▶ Reply

Permalink Reply by USA Landowner on April 4, 2012 at 6:08pm

just found this ...So is this really why this clause started?   using the pipelines further downstream and their charges for such?

After reading over this discussion at Haynesville shale from last year

http://www.gohaynesvilleshale.com/forum/topics/chesapeake-deduction...

I see that in one of the postings is the market enhancement clause only this time worded speaking of using an intra state or interstate pipeline for enhancing the market value.  

So perhaps this is really what they were speaking of...the sending of the marketable gas further for more processing to other markets or for refining at other locations to further 'enhance' the NG...  

Yet perhaps the secretary that typed the contracts was not feeling like putting that part of the sentence in all these contracts....or did they remove that part for more enhancement of their profit?   Just how is it that some of you even from the same oil companies are using contracts with many different forms of the same 'enhancement' clause?   huuh?  

Do any of you that have secretaries wish for them to change the clauses with new lines as they get them ready for your prospect??   so it confuses your prospect?   I doubt you do if you are a professional and ethical business person.....yet the oil companies need to get professional in their contracts with the landowners...instead of these flimsy 'catch all' schemes.  I am sure the investors' contracts don't have flimsy one liners that are 'catch all' or maybe they do and they better also look at their contracts as the oil company rep was smiling at them also as they chatted about the football game.

  Money isn't everything though with it one can have power and pay for things...but there comes a time when a good and rightous Maker says, 'enough'...these are the people I made for my pleasure and my pleasure does not rely on them being cheated by one another.

here's the clause that was in one of the comment posts at that link above...

 however any such cost incurred on an unaffiliated interstate or intrastate gas pipelinewhich results in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from the Lessor's share of production so long as they are based on Lessee's actual cost of such enhancements. In no event shall Lessor receive a price that is less than, or more than, thje price received by Lessee.

Everyone with this clause (or the different ways it is worded)...PLS READ ALL YOU CAN ABOUT IT.  here is another new discussion about it also.   I feel like the watchman on the tower but you must do your part also...i  have a contract that states that Lessor may pay ALL the costs...that is why I am spending the time asking you to look at this topic and esp. your clause on your contract as the same clause is NOT the same on every lease contract.

http://gomarcellusshale.com/forum/topics/royalty

• ▶ Reply

• ‹ Previous
• 1
• …
• 5
• 6
• 7
• Next ›
• Page