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 The Hiker on October 4, 2013 at 5:32pm

Karla:   Who would Kevin call within the Gulfport organization to answer the question (what process resulted in the 20% deduction, if deductions for separating, treating, marketing, etc...are excluded under his lease)?   What other process not spelled out in the lease was used? 

If you are one of the good guys, you might be able to help put him in touch with the right person. 

Permalink Reply by Karla on October 5, 2013 at 9:37am
Mr. Brutz,
Did you receive your bonus check yet? And if so, did it account for that clause? Just wondering.
Permalink Reply by Kevin in Belmont County on October 5, 2013 at 9:56am

Yes, I did receive my bonus check last year. The bonus check was paid out for the full amount of my lease without any deductions. I never received a signed copy of my lease. I have contacted Gulfport about receiving the signed copies of my lease's.

Permalink Reply by Philip Brutz on October 5, 2013 at 9:57am

We have been paid $5000 an acre, 20% Gross.  No deductions.  Guernsey county.  

Permalink Reply by Kevin in Belmont County on October 8, 2013 at 12:12pm

Philip, is the anyway you could give me the name of the group your with that signed the lease with 20% gross production? And what company did you sign with was that with? Gulfport is claiming they have never signed a lease without a market enhancement clause.

Permalink Reply by Philip Brutz on October 8, 2013 at 12:31pm

Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A. (KWGD) has lead several landowner groups.  I was in the Guernsey county group.  Our group signed with Gulfport.  They are an excellent law firm specializing in oil and gas law.  You may want to hire them.

http://w***********/

Best Philip

Permalink Reply by BMR on October 9, 2013 at 3:29pm

Karla,  In what instance would a bonus check ever account for a market enhancement clause?

Permalink Reply by Kevin in Belmont County on October 9, 2013 at 3:54pm

I don't think it does because  there is no production tied to it.

Permalink Reply by Money Bags on October 29, 2013 at 5:56am

Interesting

Permalink Reply by Money Bags on October 29, 2013 at 6:13am

I'm just wondering..like Karla said "Did you receive your bonus check?" "Yes" you said. Karla said " And if so, did it account for that clause?" Your reply was, " The bonus check was paid out for the full amount of my lease without any deductions."

So since NO Enhancement was taken from this check, Wouldn't this check set "Presidence"?

After all isn't leasing the one of the first cost in Enhancement?

Just wondering?

 

Permalink Reply by Karla on October 5, 2013 at 9:39am
Hiker/Kevin,
Please send me your contact info or email me through this site. I will then try and help you reach someone at GPOR that can answer this question for you.
Permalink Reply by The Hiker on October 5, 2013 at 10:01am

Kevin/Karla:   I am leased with another oil company but acutely interested in this subject because my lease also contains a market enhancement clause.  

Kevin;  I really hope you follow up on this with Gulfport and press them for details.   You deserve an answer.   20% is a massive deduction.   If it was for "cracking" the ethane contained in your gas to produce ethylene, OK....but I don't think that's what it was for, and 20% certainly doesn't smell right.   Maybe I'm completely wrong here, but there are many on GMS who would like to know what Gulfport is using to justify the deduction.   If they are doing it, others may do the same.

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