Addendum: Two Addendum Provisions, good and/or bad

The following two items are included in my addendum. 

Good or Bad? Why?

 

A)..ROYALTIES WITHOUT DEDUCTION:  Royalties shall be paid without deductions for the costs of producing, gathering, storing, separating, treating, dehydrating, compressing, transporting, or otherwise makeing the oil and/or gas produced from the lease premises ready for sale or use.  All oil and/or gas royalty shall be delivered free of cost into the tank or pipeline (for oil)and into the pipeline (for gas), with the exception of Lessor's prorated share of taxes, measured by volume, on the oil and/or gas royalty.

 

B)..OIL AND GAS: This Lease shall cover only oil and gas and related hydrocarbons that may be produced through the well bore; and all other minerals, including, but not limited to, lignite, coal, uranium, sulphur, gravel, copper, and metallic ores are not included in this Lease.

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Permalink Reply by craig on September 20, 2011 at 12:38pm

Tom,

Dry gas only coming out of the wellhead needs very little 'processing' to be in a sellable state. Thus if you have dry gas in your area, i would think it best to be paid at the wellhead, which would eliminate the 'overhead' that the gas co may well impose on you. 

Now the wells that have lots of natural gas liquids (NGLs) need lots of processing to separate the liquids and gas, which leads to more costs, but also results in more valuable things that could include ethane, ethylene, propane, butane, butylene,etc. From what I understand in some of the shale plays these hydrocarbons increase the value by 50% or more of what comes out the wellhead.

"Wet Gas" or gas that has lots of NGLs is where it is at.

Hope this makes it a bit clearer.

Like I said I'm not in the gas business, but I've learned one heckuva lot over the last 4-5 years. I wish someone in the know could back up what I am saying, or debunk it.

 

 

Permalink Reply by Tom F on September 21, 2011 at 6:15am

Craig,

I an enlightened with your explanation on dry gas.  Thanks!  As for the processing of "wet gas" when reviewing a lease should these additional gases be separated in the lease?

Permalink Reply by craig on September 21, 2011 at 10:17am
What SHOULD be in the lease...I don't know, not a lawyer. Usually I see a clause similar to royalties on all gas/oil and all related hydrocarbons. That covers them all i believe, except CO2. Yep, some places they can sell the CO2 as well.
Permalink Reply by Buck Chitawa on September 16, 2011 at 8:49am

 

Ref A)

Are you taking some of your land's own oil and gas in your own off-take for sale? If not why would you have a pro-rated tax liability... and if you did, why isn't your tax liability based on YOUR sale dollars instead of pro-rated on total production volume?

What is your 'agreed to' natural gas index for valuation of your gas royalties?

Have you defined a depth range (Marcellus Shale formation) as defined in a strata clause, or is it surface down (total lease)?

 

Ref B) The wording on this is horrible... I would request a re-write to avoid potential misunderstanding... imho

Permalink Reply by Farmhouse on September 16, 2011 at 10:34am

Buck

what's your opinion on the no deductions issue

Permalink Reply by Tom on September 22, 2011 at 10:18am
I have exactly the same "no deductions" clause in my lease and I'm receiving royaltyies free and clear; no deductions.  I'm with Southwestern and I considered them to have been very fair through the whole process. 
Permalink Reply by Anne-Marie Anderson on September 22, 2011 at 4:36pm

No deductions benefit you the land owner.  You get x% of profits prior to the gas company taking out costs of running the well, transport expenses, etc.

 

Well produces $1000.00  you get your percentage of the $1000.00

 

lease after costs ex.   well produces $1000.00.  Cost to run well and transport $100.00   You get your percentage from the $900.00 remaining.

 

just a simple explanation.

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