We own a tract of land that has had a gas lease since the middle 70's.  It was renewed and had a Coal Bed Methane Lease added to the original along with modifications to the original gas lease in 2008.  We conducted an audit in 2014 that actually did not start until 2015.   Much to our surprise we found the lease had been totally mismanaged, and the terms of the lease were not being followed.  Things such as royalties were being paid to the wrong person,  Deductions were being taken that were not in compliance with the lease. 

We have 7 terms of the lease not being followed and in correspondence with the gas company have learned the terms will not be followed or honored now or in the future.  Just one of the items we are arguing is deduction of "volumetric deductions".  In general there is a loss of gas production thru the well heads or gas lines to the sale volume.  Historically a 2% loss is considered a high normal.  Thru our audit we found a deduction of over 7%.  According to the terms of our lease, "no deductions" will be  deducted from royalty payments.  Keep in mind this is a lease that lawyers, ours and theirs, created and was signed by both parties.  This is very significant in that they owe us a lot of money from the past but also will be ripping us off in the future and who is to say they will not increase that percentage of deduction?

So my question is, How do you get the terms of a lease to be followed by all parties, not just one party?  It is a matter of principle as much as anything.  If you include the cost of the original lease along with current legal fees, and add in the audit fee, the total is a staggering amount passing $75,000.00.

How much Principle can we afford?  You do not have to be a rocket scientist to figure out the gas company is simply trying to make it too expensive for the little guys to fight and win. 

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Comment by Robert Piggott on February 15, 2016 at 10:20am

I am also one of the trustees in the Virginia land tract Fred Brown is referencing. My questions: How could a top S&P 500 gas company's accounting department be so inept that it sends out gas well royalty checks to the wrong recipients (for 4-plus years)? How could this same company ignore state statutes and a contractural lease agreement and refuse to pay interest on delayed and misdirected royalty payments? How could this company ignore the terms of the lease, which states no wellhead deductions, and then back out over the years 7% in volumetric deductions? There are other lease violations, we argue, including no proof of insurance on a gas pipeline that runs through the property and improper drilling and production of coal bed methane gas. How common is it for a large S&P 500 company to sign off on a lease and proceedI to ignore the terms? If there is interest or answers to these questions out there in the blog world, feel free to chime in. If indeed there is interest, I will give an update on anticipated court litigation once papers are filed in Dickinson County Virginia. 

Comment by Fred Brown on February 9, 2016 at 8:16am

We have !

Comment by Chuck on February 9, 2016 at 5:58am
I am by no means an expert. But I would say a good lawyer is what you need here.

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