Beware of all the gas companies!

I signed two lease's back in 2011 with Gulfport Energy on 80 acres that I own in Belmont County, Ohio. Let me start by saying don't believe anything that any of the land men tell you, the are working for the gas companies and their own benefit not yours period. While I was negotiating my lease with several companies at the time in 2011. I clearly explained to them that any lease I would sign would require a Pugh clause, and that I would not except any lease that required me to pay any of the cost associated with the production or marketing of the finished product from any wells drilled onto my property. I ultimately ended up signing with Gulfport Energy because of the higher bonus payment and higher royalty percent, and the land man assured me the Pugh clause and the deduction clause weren't a problem, that a lot of people were requesting it. Well the land man was lying through his teeth after receiving my first royalty check and statement there were $14,574.11 in total deductions. Beware of any lease that includes the language below.

 

"All oil, gas or other proceeds accruing to Lessor under this lease or by state law shall be without monetary deduction, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas and other proceeds produced hereunder to transform the product into marketable form; however, any such cost 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.  However, in no event shall Lessor receive a price that is less than, or more than, the price received by Lessee."

 

It was explained to me that this was exactly what I wanted and that the second part of this clause only meant if they did any advertising to enhance the selling price of the finished product I would have some associated cost from that. Well I have since found out that this is the language that the big oil companies have adopted to lead land owners to believe that they are getting a no expense deducted clause in their lease. If you find this language in your current lease be assured be ready to pay every single cost that is associated with bringing the product to market. Don't sign it! Ask clearly for a no production cost clause and have it reviewed by a gas royalty attorney.

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Permalink Reply by Kyle Nuttall on November 4, 2013 at 8:41am

I don't know the PA ethics rules, but I don't think a phone call and a few emails make an attorney client relationship.  I'm assuming there was nothing in writing, of course.  With no contract, the attorney's not going to be able to prove anything if he tries to sue for his fees.  

Practically speaking, though, if your friend got any value out of the conversations and emails, it seems that he probably should do the right thing and pay something reasonable.

I haven't heard about the Rome Trough before today.  I'm looking into it.  Thanks.

Permalink Reply by Joseph-Ohio on November 12, 2013 at 12:34am

Following is an excerpt from a reply to this post by a Ginny S. and which reports some lease language that sounds pretty good to me (but I'm just a layman landowner not an Attorney).  Wondering how your gas / oil company employer would feel about it being binding in their leasehold agreements Karla ?

Ginny S. wrote as follows:

"Our lease has language that is supposed to address this problem:

"The royalty under the Lease shall be paid based on a sale at arms-length between unrelated parties and, except for Lessor’s share of production severance taxes, if any, shall be paid "gross" and free of all costs of any kind, including, but not limited to, costs of gathering, production, transportation, treating, compression, dehydration, processing, marketing, trucking or other expense, directly or indirectly incurred by Lessee, whether as a direct charge or a reduced price or otherwise."

The lease is with Chevron (Atlas first).  They are just starting to pull permits for our site, so I suspect it will be quite some time yet before we receive any royalty payments.  I'm not sure how we would know if they were selling the gas in "arms length" transactions or not."

A short coming in the above that I see is a portion of any severance taxes would be charged to the landowner and I presume it would be prorated based on acreage and royalty percentage and deducted from the landowner's royalty payment.  I call this a short coming since I think (as a layman landowner) that any taxes including real estate tax increases, severance taxes, etc. should be paid by the O & G / E & P as a cost of doing business, and not the landowner.

Also, you write above :  "The only way for a land owner to avoid these costs is to not sign a lease at all."  Of concern to me (a layman landowner) then would be being force pooled / force unitized into a lease that assigns post production and market enhancement costs etc. to the landowner anyway; and short of hiring an Attorney and going to court over it, I see (once again looking at these things only from my layman landowner perspective) no recourse / remedy at all for.

Wondering what the large landowner groups are including and promoting in their leases to address this matter ?  Not knowing what they are promoting is one of the main reasons that has kept us from signing up with any of them operating in our area.

Any clarifications to offer Karla ?

Permalink Reply by Darlene Newton on November 12, 2013 at 12:42am

Yes, make it as simple as possible with as few words for the MORONS to re-define!

Landowners  retroactively receive 12.5 percent for pre -existing Leases! The New Law reads: 

12.5 percent due lease owner! Or lease is BOGUS! PERIOD!

Solution Solved!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!111

Permalink Reply by Darlene Newton on November 12, 2013 at 1:49am

Yes that is something I have not looked at;  You could be right,landowners could be due the royalties from the point the enhancement changes hands to the consumer? So all their definitions could in turn slap them in the face? 

Permalink Reply by Joseph-Ohio on November 12, 2013 at 2:15am

Why would a lessor have to pay any cost whatsoever that the lessor receives no share of return in ?

Because of some crooked compilation of some crooked words ?

Permalink Reply by Trapper on October 4, 2013 at 9:41am

May I ask how many acres are in your unit and if it is all dry gas and also is this a one month royalty?

Also , how many wells are producing in your unit?

Thanks in advance!

Permalink Reply by Kevin in Belmont County on October 4, 2013 at 9:45am

640 acres, 1 well, it is wet and dry. this is a 3 month royalty

Permalink Reply by Trapper on October 4, 2013 at 10:47am
Thank you Kevin!
Permalink Reply by searcherone on October 5, 2013 at 3:31am

Kevin,

How many acres do you own in this well site?  With that % and the figure of 14,500 dollars some math person on here could figure approximately how much Gulfport's  total enhancement costs were for that quarter on this well.   IMHO most landowners will be even more appalled at the total figure.

Kevin, thanks for starting this discussion.  GMS needs more landowners like you willing to share the truth of what is happening with their leases, royalties, and relationships with companies working in the O&G business. 

Permalink Reply by Brian Delphia on October 8, 2013 at 7:29am
What well is it? i am curious about the production of the well...any info you can provide??
Permalink Reply by Brian Delphia on October 9, 2013 at 7:06am
hey Kevin, Thanks for the email and information.For some reason i cannot email you back. can you send me another message with a email address that I can contact you
Permalink Reply by Patrick Murray on October 18, 2013 at 9:20am

Thanks for the post Kevin.  Please keep us all updated so we can see progress, and keep learning!  

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