I just got my 1st royalty check and was disappointed.

I didn't expect a lot for several reasons but didn't think they would be taking so much out for "gathering" (34%), and also a little for "third party". Total deducts came to 37.5% which I thought was excessive.

Does this seem normal?

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the standard across the country and in PA historically is the royalty owner shares the post-prod costs proportionally. You need to have special language to prevent it.  That changes the economics and in theory effects what R rate you might win when leasing, though that is inexact. .59 instead of looking at it as a %, you will find it is a per mcf fee, .59 in the Chesapeake areas of SE Bradford is what we see.  Southwestern might be.  40ish?

Even with language stating otherwise it si a fight with Chesapeake though at least 2 companies recognize the mkt enhancement clause which many have. 

BTW it is nit time to say they can just do what they wish that is expecting defeat. There are laws and legal history. The Kilmer case was expected to go as it did, industry standards , precedent is 100%  that the 12.5 PA state min applies to value to the wellhead, not point of sale. did I say that correctly?   Much if the barely profitable shallow gas industry could not exist if they paid 12.5% on gross, their margins are that thin..

 

Some of this comes down to laymen vs industry understanding. 

maybe the 12.5 % min will be retried, here is hoping but we doubt it will change.

I'm curious if anyone has experience to share with regards to a CHK lease that is in a well unit that is being operated by Chief.  I'm curious how if at all the deductions are affected given that Chief is the Operator but CHK is the lessee. 

Background, CHK wanted me to renew @ $1k/acre a year ago.  I refused citing the deductions issue and their general reputation as not being friendly to land owners.  Once I refused they apparently made a deal with Chief to add a part of my property to a Chief unit which is supposedly now producing (though I have not received any royalties to this point).

Like many, the CHK lease now also has Statoil, Mitsui and one other involved just looking at what has been filed on Landex.   

I'm expecting that the deductions will be crazy and I'm expecting to have to hire a lawyer to fight it. 

calculate by cents per MCF

Get used to it !  Rally at the Courthouse Friday!

see the post I did on the "rally at the Courthouse" post.

Email the committee chair o help move the bill through

Background: I am in a producing unit but not yet receiving royalties, but I hope that will change in the near future.

I have read the posts on the Royalty topic for quite awhile and I am beginning to think that we, lease holders and politicians, need to step back and take another look at this. Although I do believe there needs to be a look at the deductions for possible questionable practices there is one issue not discussed. Taxes.

I may need to be corrected on this but in my humble understanding the State of Pa is missing out on an infusion of tax dollars by not enforcing the 12.5% royalty. The gas companies can expense their transmission costs and all other costs against their income from the sale of Natural Gas. And at the same time, it appears they can recover those costs from leased landowners who signed early leases. By doing this royalties are not paid to individuals who would be taxed.

So it appears that in order to receive royalties at a fair rate, we all need to embrace the subsequent taxes. And sell our legislators on the idea that they need to do this for reasons of constituent fairness and taxable income from constituents.

An interesting approach  John, but there may be an even bigger way to get monies owed to the State and the municipalities. There is little oversight being maintained on the production figures claimed by the O/G companies, and little oversight on the actual market value received for the transactions.

We are expected to believe the O/G companies on what they say the wells produced, and on what they received for the sale of the products. Forgive me if I remain unconvinced that they are being accurate. I would feel far more comfortable with some type of oversight in place. I understand that  the ODNR(Ohio) does this automatically. Why aren't we (Penn.) doing it as well?

Dan

Dan, I agree. The sale price of Natural Gas does need to be monitored. The fox is in charge of the chicken coop at the moment. This is especially true when their product is sold to a subsidary. At best the accounting becomes murky.

But in the realm of taxes, the gas companies can deduct their expenses and when I view their balance sheets I see no lines for the recovered costs from leaseholder royalties.

In short, my point is that the state is missing out on taxes not being paid on royalties and monitoring the sale price of natural gas is a part of the process. Transparency is necessary.

The gas companies need to be monitored more strictly in every aspect. All they do is rip off the land owners.

I chose this group to post this news item since it deals with deductions from royalty checks. The math works out to a $2150 per acre settlement order. I suspect Chesapeake will appeal but it is clear that the corporate officers believe is legitimate.







A federal judge has ruled that Oklahoma natural gas giant Chesapeake Energy Corp. (NYSE: CHK) improperly deducted postproduction costs from royalty checks issued to 21 landowners, including Fort Worth billionaire Ed Bass.
The Fort Worth Star-Telegram reported that the case stemmed from gas pumped from roughly 4,000 acres in the Barnett Shale of North Texas.
U.S. District Judge Ed Kinkeade did not mention a dollar amount in his summary judgment, but court documents indicate that the landowners could be owed at least $8.6 million, the Star-Telegram said. The jury could add millions more, the newspaper said.

According to the lawsuit, Chesapeake improperly deducted postproduction costs that were expressly forbidden by the leases and then used the sale of gas to affiliated companies to set a below-market price on which the royalties were paid, the Star-Telegram said. That, too, was a breach of the lease terms, the newspaper reported.
“I think the landowners are gratified by the court’s ruling and it tracks the language of the leases,” Daniel Charest, the attorney for the Bass-led group, told the Star-Telegram. “The court saw there was not a material issue of fact and we happy with the result.
A spokesman for Chesapeake declined to comment on the ruling.
Earlier this year, the Texas Supreme Court in another case ruled that Chesapeake owed the Hyder family of Fort Worth at least $1 million for wrongly subtracting costs from royalty checks from wells in Tarrant and Johnson counties, the Star-Telegram said.

That's good news and good information, John.  Thanks.  And it might offer some hope for Pennsylvanians, provided Chesapeake does not first go belly up, except:

Unfortunately most PA landowners do not have Bass Brothers money.  We have to rely, instead, on our PA Attorney General to step forward on our behalf and do what needs done.  I cannot comment on the future.  But so far, at least, our reliance on our PA AG has not been working out. 

While I agree about Bass brothers money, I believe this was a contingency based lawsuit. There are several such lawsuits currently in the process against 5 gas companies. In these cases attorneys only get paid if they win. Yes, your initial settlement is reduced but going forward deductions, if any due to your contract, are reduced. Attorney fees are based on the initial money recovered and not on future payments.

As to the Attorney General, there is a limit as to what that office can do because of all of the individual contracts signed. All contracts were not the same and did not contain the same language. At best the only thing likely will be a clarification of the 12.5% issue or if collusion and unfair practices are uncovered.

Your best bet is to join one of the existing lawsuits. One based out of Towanda or the MacDonald suit out of Texas. Your chances of success are pretty good.

As far as Chesapeake going belly up; not likely. They are more likely to be bought since they own far too much in recoverable resources than many other companies.

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