The day I have been waiting for: 60% deductions withheld!

I knew it was coming,deductions finally exceeded royalty payment. XTO withheld 61 percent

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Permalink Reply by Bill Barnaby on July 13, 2015 at 5:16am

What happen to the days of 30% deductions being a lot lol.

Permalink Reply by Philip Thackray on July 13, 2015 at 6:00am

Dave,

 

The royalty deduction issue all comes down to how later judges/courts interpret the PA Supreme Court ruling on Kilmer v. Elexco in 2010.  Here is very good overview of the issues:

http://www.duqlawblogs.org/blj/wp-content/uploads/2012/05/hantz.pdf

 

Here is an article that states that the PA Supreme Court decision essentially changed the definition of royalty to include deductions:

http://oilandgas.jacksonkelly.com/2010/03/pennsylvania-supreme-court-issues-landmark-opinion-in-kilmer-v-elexco-gas-royalty-dispute.html

 

I agree that the wording in the circa 2007 Phillips leases explicitly states that the royalty be paid on the proceeds to the lessee (O&G company) and that deductions are explicitly limited to taxes.  Sounds like a slam dunk to get no deductions but Kilmer has thrown a wrench into the reasoning process.

 

The Kilmer case was not about deductions per se as the Kilmer lease contained provision for the deductions associated with wet gas from horizontal wells.  The lawyers in the Kilmer case argued that the deductions could not go below 12.5%.  The Judges could have simply ruled that the lease stands as written but instead went into great detail to justify the “net back” reasoning.

 

This was a VERY industry favorable ruling.  If the legal definition of the word “royalty” has been established in PA (by the PA Supreme Court no less), it would be hard to argue against deductions being applied to the holders of the old Phillips leases.

 

Phil

Permalink Reply by Dave Miller on July 13, 2015 at 1:36pm
Phil, I can not tell you how much I enjoy your reply's and your posts. I really believe Phillips was an honorable company and would not have interpreted the leases this way. What's next Phil are they going to start charging us for electric like Rex? I don't believe we signed up to be their partners. On a different note check out the new leases XTO signed on the Butler County deeds website. According to USA today Marathon Oil bought Markwest. Phil I really believe I will be mailing them a check this month. Thanks again, Dave
Permalink Reply by Philip Thackray on July 13, 2015 at 1:57pm

Dave,

I talked to Jim last night as he left his dinner at Hardwood and met Patricia.  Nice people.  He farms my farm on Brownsdale.  You must know about his model railroading hobby.  We own several of  the "Marburger" dairy railroad cars.

Thank you for your kind words.  I'm really just sharing my experience. 

XTO had the chance to charge us negative numbers early on but they didn't.  I'm don't think that you will be sending them a check.  On the other hand, who knows how they calculate the expences.

Best regards,

Phil

Permalink Reply by Undecided About Oil on July 13, 2015 at 2:26pm

Phil,

 It seems like the drillers want to treat the "Royalty Interest" owners more like "Working Interest" owners, which is so very wrong. Especially, for "Gross Royalty Interest" owners.

Permalink Reply by Dave Miller on July 13, 2015 at 11:31pm
Phil, Did your June royalty statement have adjustments from past months? Dave
Permalink Reply by Philip Thackray on July 14, 2015 at 3:22am

Yes.  But I don't know why.

Phil

Permalink Reply by GM on July 15, 2015 at 2:41pm

!00% of zero is my take on where this will go.

Permalink Reply by Dave Miller on July 15, 2015 at 9:37pm
GM, Did you read the Butler Eagle on Wednesday? Two gentlemen with Phillips leases are taking them to court. They are hoping to make it a class action lawsuit. Dave
Permalink Reply by GM on July 18, 2015 at 10:58am

I did see the article.
My random thoughts:
I believe the pre 2007 lease language does not permit XTO from deducting costs beyond taxes. The PA supreme court, as Phil pointed out, changed that definition.

I also enjoy Phil's posts, along with the other Butler County regulars. I value they're input.

If the NG prices do not increase, and the cost's of transmission for the product do not decrease, and the increase in pressure from the landowners to obtain a "fair" deduction percentage. (My 2007 lease has NO deduction clause)
What will stop the GOC's from stopping most production and additional drilling until the market bears a greater result?

How much did you spend on attorney's fees to get an 14% royalty?

Is a 14% royalty after attorneys fees, a better deal in a 650 acre producing unit, or is 12.5% in a 300 acre producing unit better?

I have been involved in and had a settlement from a class action lawsuit against Citizens Bank. I recieved ten cents on the dollar.

If the gas companies turn the valve off to wait out the market, 100% of zero, is zero.

Just my thoughts. I'm am disheartened by the current situation and I do feel taken advantage of.

Permalink Reply by Dave Miller on July 20, 2015 at 2:49am
GM, I am really curious to see how this thing shakes out. Maybe everyone would be better off in the long run if they did stop drilling and production. Which would open up a new can of worms with the shut in clause. I have a 1/8 royalty. I to have been involved in a class action lawsuit. A fiber optic line was installed along the railroad tracks 30 years ago. Long story short was offered .91 cents a foot. Seriously. Anyway, their lawsuit may help with future royalties. GM, along with information this site is a good place to vent. Thanks, Dave
Permalink Reply by Dennis Sweeney on July 20, 2015 at 4:33am

Please direct me to the Butler County lawyers who are developing Class Action lawsuit against XTO.

I have a Phillips Production Lease and  in two years $20,000 has been deducted by XTO for gathering & transportation.  What is the basis for these charges,  seems quite arbitrary, is there a formula?

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