Deductions from Royalty Payments

What is the expected deduction from royalty payments?    Does anyone know what the deductions amount too such as compression, dehydration, gathering, transportation, etc?

 

Thanks,

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0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on January 12, 2011 at 11:54am
I hear what you say R. leo ferraro cpa...but when one is lied to and is not knowledgeable of the entire process and is depending on the reputable oil company to not cheat (though it is understood that they will look to make or protect their profit)...then it is not what was negotiated it is a type of trickery on the oil companies verbage and representation from the landman they hired.  So it is difficult to get on with life if they have cheated and intend to continue in doing such regarding lease terms that they knew that the landowner wouldn't understand...and yes there was an O & G attorney used in preparing the addendum.   Because the royalties are what the landowners are expecting past the intitial up front monies given (whether they be low or high) and when the negotiation of the royalty turns out to be a cheat on the landowner...then indeed it is not so easy to get on with your life when you know that they have your gas from your land and you cannot do anything about it but wait til you can get out of the lease with them.  But what to do when that company that is the major drilling company in the state?
Permalink Reply by Jeffrey Craig on December 31, 2010 at 11:46am

Thanks to all of you for the enlightening discussion.

Does anyone know whether or not the deductions are itemized? If so then they would be subject to scrutiny to determine reasonableness.  Reasonableness is highly subjective. However, in the hands of a good lawyer it can be an effective weapon.

It would seem to me that companies would be stupid to nickle and dime people on deductions and run of the risk of a class action suit or ruining their reputations and therefore the ability to lease more property. However, it is a well documented fact that people (at the expense of the company and shareholders) will do many stupid things in the name of promotion and bonus.

 

Permalink Reply by FXEF on January 4, 2011 at 3:05pm

Jeffrey,

 

It really depends on the operator as to them itemizing deductions, some do... some don't.

Folks, if you have signed a lease without a "cost free clause" then it's not much you can do except pay the consequences ( treating, transporting, dehydrating, processing, compressing, and separating).

However if you have not yet leased, make sure you have a "cost free clause" in your lease. It will save you many dollars over the years of production. It will depend on the state your minerals are in as to the wording of the clause. You most likely will need a experienced O&G attorney.

0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on January 11, 2011 at 4:16pm

thanks...for introducing this topic.   I have read part of this discussion and it is very benefiicial to hear what the others are saying.  My lease states 'PAYABLE ROYALTIES ARE BASED ON GROSS ROYALITES'.  Yet in another clause called a 'market enhancement clause' there is more verbage regarding the royalties clause provision...and they seem to contradict some based on the word 'enhancement'.

My question in this topic is :

"What does it mean when a Market Enhancement Clause states," however, any such costs which result in enhancing the value of the marketable oil, gas, or other products to receive a better price may be deducted from Lessor's share of production so long as they are based on Lessee's actual cost of such enhancements."

what is meant by 'enhancement' that they would charge the Lessor?   When we signed the lease back some years ago...we were told by the landman that the enhancement is a special process that rarely is used as it is a different process than just transforming the product into marketable form.   They wouldn't remove that part of the clause.

Permalink Reply by Jeffrey Craig on January 11, 2011 at 5:35pm
VG  There could be a number of enhancement opportunities, i.e compress the gas to get it into an interstate line, producing liquids such as propane, building a line directly to an end user to get retail price. It is more of a cya clause in case there is an opportunity to increase the value of the gas. They want you to pay your fair share of the expenses. Not unreasonable. Check your royalty statements regularly and ask questions if expenses start going up.
0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on January 12, 2011 at 11:32am

Jeffrey...now that I have read the google search info and the clauses better...it is not "a fair share" of the expense...it is charging the lessor fully for the expense....which we were lied to and was told that process of 'enhancement' was rarely used...and we were given the example of producing a liquid such as propane....but we were not told that 'enhancement' would be even in the transport of the product...as you can see at this link what this company calls enhancements...

http://www.highplainsgas.com/general.php_category=News+Events=press...

 

and thanks for your input it is appreciated...if you make any more comments about it pls put it at the end of the discussion area instead of here so it will make more sense with the full clause that I typed in the reply post towards the more recent postings at the last page of discucssion.

Permalink Reply by FXEF on January 12, 2011 at 2:59pm

VG,

The High Plains link has nothing to do with the enhancement clause in your lease. High Plains has started a re-enhancement program to get more production from declining wells.

0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on January 12, 2011 at 3:04pm

the high plains link gave a list for what they called enhancement processing....and that is what I googled searched to explain to me better what exactly is 'enhancement' in marketing the NG as the oil company has put a contradictory clause in one clause called 'Market enhancement clause" and if they consider that the enhancement processing is what High Plains is using then us landowners with this clause better prepared with a good O & G lawyer as to how we do not have to pay (the entire cost) of the enhancement processing.   And a O & G lawyer was used to prepare the addendum for a large group in Bradford/Sully is what I was told when the landman gave us that contract lease/addendum to use for ours though we were not included in their group lease that I know of.

Hopefully you are right though...as the High Plains called it 're-enhancement' maybe that isn't the same as 'enhancement'...oh...help us Lord!

yet at this link (i also posted this in a entry further into this discussion)...is a point of view about that...

http://en.allexperts.com/q/Energy-Industry-Oil-2441/2008/9/Enhancem...

 

 

Permalink Reply by FXEF on January 11, 2011 at 5:42pm
The deductions will be on your check stub, they may or may not be itemized... depends on operator.
0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on January 11, 2011 at 6:12pm
thank you both...for your input.   But does this type of situation come up often and even have a great deal to do with the monthly revenue?   we were told that it doesn't...but I also see it as a cya also...just hoping that it doesn't have anything to do with the regular production, transport, etc. that in the same clause it states that we don't have to pay anything for those expenses....that we receive gross at the well head.
Permalink Reply by Jeffrey Craig on January 12, 2011 at 9:34am
VG  It sounds as if there is some incongruity in the language.   But the overall intent is if there is an increase in the value of the gas resulting from investment or expense on the part of the operator, your royalty will reflect your share of the cost. That said, the only way your expenses can go up is if the revenue goes up.  But that would be a good thing.
0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on January 12, 2011 at 3:15pm

thanks Jeffrey..

"That said, the only way your expenses can go up is if the revenue goes up.  But that would be a good thing."

but that would be if the cost was split between Lessor and lessee.   We negotiated what we thought was a gross revenue with no expenses...and then this 'market enhancement clause' has contradictory statements but it surely has a statement that LESSOR would pay ALL enhancement costs.  This is why I am google searching and asking you all just what and when does 'enhancements' come into play in the Marcellus shale area of Pa?

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