Replies to This Discussion

Permalink Reply by Denver Gallentine on December 7, 2012 at 11:30am

Todd - I will be very interested in learning the answer to this. We have land in WV and Ohio. It is my understanding that in Ohio the lease can either be created to pay the royalties @ wellhead (not deducting transportation costs) OR royalties paid on profit after transportation cost are deducted. Needless-to- say, oil companies push for the 2nd form. Waiting to see how answers go. - Denver

Permalink Reply by Todd on December 7, 2012 at 12:29pm

Hopefully, the good people of West Virginia will let us know what to expect on our old oil and gas leases once our production begins.

Permalink Reply by Denver Gallentine on January 7, 2013 at 11:39am

Todd,
An interesting addition to our discussion occurred today. I received a lease offer for a section of land in Wetzel County from Chesapeake. The lease states 1/8 th royalties at wellhead. it then went on to describe the @wellhead being gross royalties (12 1/2 percent AFTER all costs are deducted including all transportation costs. I think I need to get a better understanding of the definition of "first marketable state". I will let you know how things turn out. If you, or anyone, has any information and/or advice I will appreciate it.
Denver

Permalink Reply by JK on January 7, 2013 at 12:14pm

Todd,

You need an attorney NOW!

You're dealing with CHK - get an attorney.

1/8th = 12.5, which is the lowest legal rate they can give you on royalties.

The language you say they use is so twisted for you then back at you in reverse.

I am leased with them and know how they operate - constantly!

You are just a number to them and never forget this.

We have had to battle them many times, still at it, and the language presented always is taking away instead of honoring the orginal agreement. NEVER trust them!

It's good to get leased but you will have to negotiate with CHK no matter what they tell you. If you don't then the language they use will be actually giving you a much lower royalty rate then you think you are going to get. It works out this way in the deductions, etc. You think you have 12.5% then you are really getting barely 10% and it's completely legal.

We are in Mongalia county, WV.

Please help yourself.

Permalink Reply by Denver Gallentine on January 7, 2013 at 1:19pm

JK,
Thanks for the advice. I assumed the offer was a bad one since it was so much below what we signed for with other sections. We will contact a lawyer. An old student of mine is an oil/gas attorney so I will get him to direct me.
Thanks again. - Denver

Permalink Reply by Todd on January 7, 2013 at 4:29pm

Denver,

JK is correct.  Always have an oil and gas attorney correct any oil and gas lease, especially a Chesapeake lease that does give them permission to deduct post production costs.

FYI:  The lease I have is an old lease at 1/8th royalty and has none of the legal language in it for the operator to deduct post production costs as would be necessary for the operator to further greedily take more than 12.5%. 

Permalink Reply by Denver Gallentine on January 8, 2013 at 12:06am

Thanks Todd. I always see the money, or potential money, from these leases as "found money" , but it seems with this offer Chesapeake wants to take a lot larger share of the money then they should.

Permalink Reply by Ronald Hayhurst on January 7, 2013 at 4:56pm

In 1992 FERC passed rules that changed the point of sale for producers from the well head to the main transmission line.  So when your lease says at the wellhead it allows the producer to deduct any charges such as gathering, transmission, line loss, compression and any other charges he has until the gas get to the main transmission line.  You want to have a lawyer replace this paragraph with a clause that allows for no deductions to the royalty owner.  

Permalink Reply by Denver Gallentine on January 8, 2013 at 12:04am

Thanks for the information Ronald. That is exactly what this lease states. I think this is a terrible offer from Chesapeake.

Permalink Reply by Todd on January 9, 2013 at 1:12pm

IT IS TERRIBLE!

Permalink Reply by Todd on January 9, 2013 at 1:12pm

Ronald,

WV is a "first marketable product state", so older leases that state "gross royalty at the wellhead" are not allowed to have any gathering, transmission, line loss, compression or any other "post-production costs" deducted from the mineral owner's royalty. 

In most other states, this is not the case and you are correct.  It varies based on each state's laws.

"West Virginia has similarly adopted an extreme version of the first marketable product doctrine. Like the Colorado Supreme Court, the West Virginia Supreme Court has concluded that a lessee must bear all of the transportation costs necessary to deliver its production to a commercial market. In fact, going beyond the Kansas and Oklahoma rule requiring that the lessee bear all costs up to the point where it first acquires a marketable product, the West Virginia court has emphasized that a lessee may not use a workback method to deduct any post-production costs it incurs up to the “point of sale.”"

- Copied and pasted from this address: http://www.ogfj.com/articles/print/volume-2/issue-7/features/a-new-...

Chesapeake has already had to pay $ millions in a lawsuit regarding this.

 

 

Permalink Reply by Todd on January 9, 2013 at 1:26pm

The Tawney Case

http://m.klgates.com/files/Publication/53b20fd0-3960-414d-9752-270f...

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