Has anyone hired an attorney to verify that you royalties are what thery should be ?

We are supposed to be fracked in August and expect royalties sometime in the next year or so. I have every intention of hiring a law firm or an attorney to audit each royalty check for accuracy according to the lease terms as I fully expect that companies will try to take deductions they are no entitled to and various other shenanigans.

Has anyone out there actually done this, and if so what would be some good advice to give to others ?

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Permalink Reply by frank speaker on June 26, 2015 at 9:36am

Unless you have at hand all the contracts between producers and midstream companies an audit is pointless. For example, a contract allows for a midstream company to charge your producer based on a percentage return on equity. Do you know what their equity is? Do you know what that percentage is? Neither will your accountant.

Permalink Reply by Lori Huber on June 29, 2015 at 10:12am

I keep reading posts about deductions from royalties, etc and wonder if these are the gathering fees and so forth charged by the gas companies?  Our lease specifies that we receive gross royalties at our specified percentage at the wellhead without deductions or costs and additional addendums specify that gas company will pay any additional property taxes and/or chgs levied due to drilling over and above what we pay pre-gas well.  I'm curious if these deductions and so forth that everyone is talking about is something that we aren't covered under by the stated clause.  Looking forward to replies.

Permalink Reply by frank speaker on June 30, 2015 at 2:57am

Since your  gas is not sold at the wellhead, courts have ruled that you still can be charged for processing and moving product to the point of sale.

Permalink Reply by Lori Huber on June 30, 2015 at 3:50am

We did address this at the time of signing our leases and were told that because our gas is dry that there is no processing and it goes straight to market through the direct transmission line, which for us will be TX. Who chgs these deductions?  Is it the gas company, the buyer or the govt? Our lease laguage reads:

"GROSS ROYALTY: It is agreed between the Lessor and Lessee that, the percentage of all oil, gas, or other proceeds accruing to the Lessor under this lease or by state law shall be without deductions, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas and other products produced hereunder to transform into marketable form." 

It seemed to pretty much cover any deductions.  On another point commented on, the lease also gives the Lessee the RIGHT TO AUDIT in order to verify accuracy of reports and statements (though I won't copy the full language here). 

Permalink Reply by frank speaker on June 30, 2015 at 4:47am

The midstream companies, (processors and pipeline cos.) charge your producer and they pass these costs on. Almost all gas wet or dry has to be processed to some degree, and these charges and the pipeline charges can be very difficult to audit. The language of your lease seems clear  enough to read that no such charges can be deducted. However, if your lease language determines the price paid is to be the price at the wellhead, and there is no sale at the wellhead, do you have language for alternate sales points? Leaving that question aside, a sale at the wellhead would be at a price lower than at a market hub, to account for all those expenses, resulting in the same net, not counting for cheating. That is the logic of the court in at least one case.

Permalink Reply by bo boboski on June 30, 2015 at 5:34am

THAT is the lopehole they needed. "at the Wellhead" !  If your lease has it at the price sold at the wellhead, that gives them the reasoning they want to be able to charge all those deductions. Check your lease.

Permalink Reply by Lori Huber on June 30, 2015 at 6:44am

The "at the wellhead" designation was my own and is not stated in the lease. What I was referring to was that we were to receive royalties on what comes out of the well with no deductions, "directly or indirectly", per the lease.  On a side note, our gas company owns the midstream company, as well as a portion of the distribution line going to market in TX.  The lease language appears pretty cut and dry and, although I may have miscommunicated here by using the term "at the wellhead", the lease does not use the term (I made sure I re-checked it) and the only language describing royalties in regards to deductions is the one I transposed directly from the lease, above.  The land rep said that our royalties would be based on the price at mkt (in TX); gross royalty at leased percentage.  I'm assuming from the replies that that would mean that we should have no deductions from our royalties.  Not until the govt gets their tax share, anyway.

Permalink Reply by Booger on June 30, 2015 at 7:44am

the land rep is probably not a good source of truthful information

Permalink Reply by Lori Huber on June 30, 2015 at 9:35am

Guess we'll see.  They're expecting to start fracking late summer/early fall. Looked through the entire lease and can't find anything contradictory (and we had 4 pgs of addendums added to cover everything we could think of after extensive research and particularly following landowner blogs and forums from the Barnett Shale play in TX to know what those landowners were running in to so we could guard against it).  I'll be very anxious to see how it pans out though not much can surprise me these days. Can only do your best and hope it's enough.

Permalink Reply by R. L. King on June 29, 2015 at 11:37am

Has anyone heard details on the legal actions landowners in Carroll County, Ohio are taking against Rex Energy? I have heard Rex has increased deductions to the point a group that has received royalty payments on several Rex wells have an O&G attorney auditing Rex's books. The deductions have supposedly really increased. Some of the leases were in the S.U.R.E. landowners group and that was a 20% gross type lease.

Rex drilled under our property (also a S.U.R.E. lease) last January and fracking is supposed to be in December. I can't wait for the shenanigans.

Permalink Reply by Anne Collins on July 7, 2015 at 7:55am

Just wanted to point out that if you choose to hire an attorney to confirm you are being paid correctly be sure to first qualify that he has oil and gas experience. Not all attorneys can navigate the complex oil and gas industry. But you’d be better off in my opinion if you hired a Landman with a CPL designation because they are familiar with knowing who to contact within the oil and gas industry and the necessary steps to take to get a response. You can look at www.aapl.org to locate a CPL in your area. 

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