Royalty Deductions

Got a proposed lease from EQT. Their thing now is that they won't do leases without some post production deductions. The royalty clause reads.."our percentage"....."after deductions for costs incurred by Leasee or its affiliates for transportation, taxes (including severance taxes), gathering, processing, line loss, and compression."

I have a lease from another company with the same thing, but it says "our proportionate share" of these costs. Isn't that how the deduction "should" read, IF (big if) we were to agree to this? Does anyone know what kind of money we are talking about as to expenses for transportation, processing etc.?

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Permalink Reply by patty on January 12, 2015 at 7:45am

Our lease, bc we allowed production cost, allows the gas cos. to take as much as they want from our royalty per month.  We agreed on a 12.5 per cent royalty but they are taking out so much in production costs, we started out getting 2000. per month and are now down to 200.  Hope this helps.

Permalink Reply by RB on January 12, 2015 at 8:53pm
Party can you be more specific? What is amount before & after?
Permalink Reply by Zack Jameson on January 14, 2015 at 12:55pm

I have zero deductions taken out. None. Why would anyone agree to deductions???

Permalink Reply by Frank Walker on January 14, 2015 at 1:43pm

Zack.  Easy one.

Because gas companies today often offer no choice . . no alternative.  So the only out we have is not to sign at all.  But some of us need the money and must take whatever we can get.

When (month and year only) did you sign your lease, Zack.  Several years ago it was (relatively) easy to obtain a no-deductions lease.  That was then.  This is now.

BTW, are you aware that even with a well designed no-deductions lease, there is still a way the gas company can (in effect) slap you with deductions . . . and with no legal recourse available to you?  Well, there is.

Permalink Reply by beth hamm on January 16, 2015 at 3:44pm

r u with chesapeake?

Permalink Reply by Zack Jameson on January 16, 2015 at 7:33pm

I'm with CNX and Noble.

Permalink Reply by RB on January 12, 2015 at 8:50pm
72% ?? Of your 12.5% ? Who is the firm? What is $ value of 12.5%? That's crazy
Permalink Reply by RB on January 12, 2015 at 8:52pm
That is so not right!
Permalink Reply by Sherre Boyanowski on January 13, 2015 at 9:55am

Matthew, Are you sure that you want a class action?  Is it class action or class arbitration?  Or just one of the many lawsuits? Think long and hard on your choices. Lawyers are like used car salesmen, they can talk you into something you really don't want or need. I too have CHK, and last month it was 54% they took from me. 

Permalink Reply by Sherre Boyanowski on January 13, 2015 at 1:01pm

Do you have the right to audit?

Permalink Reply by Frank Walker on January 13, 2015 at 4:21pm

Regrettably, even for landowners having a good, carefully written, lease, success with natural gas development of your land relies on your gas company having at least a minimum amount of integrity.

In the case of Chesapeake, there is no integrity whatsoever.  They do what they want; the lease be damned.  And if you don't like it, they are delighted to see you in court.  

Permalink Reply by Sherre Boyanowski on January 13, 2015 at 11:19pm

I'm not saying that you won't need a lawyer at some point. A good lawyer should, at some point, do an audit. How else can he or she tell if you were paid the correct price, the correct volume, and deductions. I think that there are steps to be taken, and if your lease allows for it, an audit is the first one. Yes, Chesapeake will grant you a time slot for an audit. It has been done. The person chosen for this should be experienced in oil and gas audits. Any lawyer you hire should be experienced in oil and gas litigation. Ask them how many other oil and gas cases they have prosecuted? Not just filed.

Did you know that if you agree to the settlement of a Class Action, it changes your lease?  That is why I asked if you really want a class action.

Yes, we all want action taken against being raped by Chesapeake, but make sure it is the right action. Do you want to sue them or settle with them? These are questions you need to ask yourself.

Don't forget, the State Attorney General and the Federal Dept of Justice are also involved.  I know that a lot of people don't trust them to do a good job of getting our money back, but the state and federal governments get royalties too. And they want all they are entitled to also. They may do the work for us without even having to hire a lawyer, who knows? 

Without a doubt, a lawyer will be needed to argue the market enhancement clause. It will require a very skilled lawyer too.  Before we signed, there were 2 lawyers that looked over our lease and addendums. We have the right to audit, arbitration, and unfortunately, the enhancement clause. At the time it sounded great. Little did we know that it would come back to bite us in the butt. 

Keep a cool head, and lets see if we can't beat them at their own game.

 

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