At the Wellhead royalty

I am wondering if anyone out there recieving royalties, who has the language "royalty based on price of gas at the wellhead," is seeing production or processing costs deducted from their royalties.  I am particularly interested in Pa. landowners.  I am curious about which gas company is taking these deductions, if any company is.  The latest NARO bulliten is confusing to me and I did not see the term "at the wellhead" discussed as a point to calculate royalties from, if that term is part of a landowner's lease.

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Permalink Reply by Brian Day on January 18, 2013 at 3:17am

I wish you the best of luck in W Va. After 6 years of this business in Pa,

Permalink Reply by Brian Day on January 19, 2013 at 6:17am

A lot of people probably wonder why I get on this site occasionally to rant and rave about something.  After all, I'm  headed into the seventh year of a lease agreement and my die is pretty well cast.  i do choose to write with a little smoke and fire quite often.  it helps to get other peoples' attention.  i learned it from people like Micheal moore and Jane Fonda.  Gas companies came into the northeast and north central counties of Pennsylvania long ago with their big sacs of deceit and caught most of us sleeping.  For the most part, we treated people with graciousness and honesty and expected the same in return.

Well enough of that.  It is beating a dead horse. Here is the fantasy that I do get out of writing nasty little blurbs on this forum.  I figure out there today, in Ohio, or West Virginia, or maybe Tennessee, some land man is sitting at a kitchen table sliding a standard lease under someone's nose, saying, "12.5% is a really good rate for this part of the country.  There probably isn't anything worth drilling for beneath your land.  Paid at the wellhead is a great clause to have.  It means the company cannot deduct any expenses from your royalty checks.  Etc, etc, etc."  A few of those people on the other side of that kitchen table will have read those crack pot comments of mine and others on this forum.  They will slide those leases back across the table and say "No thanks."  In this way, I Ifigure if I have warned off even five or six people, I have cost the oil and gas people way more than it ever would have cost them to have treated me a little more fairly.

Permalink Reply by Denver Gallentine on January 19, 2013 at 7:53am
Brian, I want to thank you for your "rants". I appreciate all the information I glean from them and the writings from other's. the advice given by you and other has made me send back one of those 12 1/2 percent wellhead royalties leases. I am one of those 5 or 6 you have helped. - Denver
Permalink Reply by Brian Day on January 19, 2013 at 9:54am

You're certainly welcome Denver.  Perhaps my smile at your thanks has been reflected in a land man's frown somewhere today.

Permalink Reply by Larry Pearce on January 21, 2013 at 4:55am

Ok, as an 8 year PA Landman in Marcellus Shale, we have NEVER suggested "Well Head" pricing.  The tone early in the thread implies the gascos are corrupt to include this language.  It has ALWAYS been a landowner or Attorney that was trying to get this language, NOT pushed by the landman or gascos, mm k?

We would and have always discouraged this, as IF you could place a value on "WELL HEAD" gas.  If you could it would yield you far less royalties than that of processed gas and subsequent products.  (and maybe that is what is being pointed out here ) The gascos acquire markets for processed products, NOT wet glop that nobody buys.

I like the Steer analogy, here is a Timber one, if you sold a stand of Cherry and received market price of $2000 for it that you agreed on, and the buyer makes 5 sets of Queen Ann tables and chairs, crafts and  sells them for $6000, you would be better off with your cut of that, even with labor costs, OR would you expect to get 100% of their profits?  EVERY Landowner should pay for their share of the processing, transpo, dehydro etc...  So why in any industry would someone take your product, prepare it, market it, sell it and still pay you back 100% of the profits? (meaning 100% of your 17% royalty)

Permalink Reply by theo on January 21, 2013 at 6:26am

our Lessee just gave up this language within hours, negotiating with their landman. A."In either case the Lessor to pay his royalty share of any expense, if any, for treating the oil from any well to make it marketable as crude." and B "less any charges for gathering, transportation, compression or line loss"   now this is only 15 acres, in Ohio

Permalink Reply by Brian Day on January 22, 2013 at 2:55am

Your timber analolgy is inaccurate.  I could easily imagine a logger offering a landowner say 10% of the price paid at the saw mill for board feet of rough lumber from the trees cut, without cutting and transportation costs and it being refered to as on the stump.  The finished cherry furniture is more likeexpecting to be paid the price of gas at the meter at private homes.

Gee, a gret number of leases in Pa. were presented with "at the well head" language as the absolute only deal offered and the very best the landowners could hope for by so many land men.  The presented definition was different then.  It seems this stratagy is still occuring in Ohio and other states by the other posts on this thread.

From what you have stated, the gas cos expect to take deductions no matter what the leases say.  So we should all just shut up and knuckle under.

Actually, I wasn't going to bother to reply to this post.  I figured most people were smart enough to read between the lines.  But this will get the tread back on the front page for one more day and potential leasing land owners will read it for one moreday.

Permalink Reply by aj burner on January 24, 2013 at 5:38am

Dominion Class   @   www.DominionClass.com  

I received payment because Dominion was paying after processing for gas.  They had to pay a lot of dollars for the fact that they lost in Court.  Owners thought they were getting well head price but they were not they had to go back to 1996 and pay the shortage. They were paying the royalty Not at the well head.

United Administrator for U.S. District court

PO Box 2024

Charleston W.V. 25328

BA Number 5015165001  We received about $1000. for the shortage on the well head payment.

This was July 2009. They sent us lease modifications for the rights we had to sign to get the money.  We opted to keep the price at the well head for the payment.

It went back to June 1996.   1 866 475 7755.  That is Dominions Number to talk to they about the payments or otherwise.  Remember this is July 2009.  My friend went to Court representing the people in the suit. It was in Clarksburg W.V.

Permalink Reply by aj burner on January 24, 2013 at 5:40am

Dominion Class   @   www.DominionClass.com  

I received payment because Dominion was paying after processing for gas.  They had to pay a lot of dollars for the fact that they lost in Court.  Owners thought they were getting well head price but they were not they had to go back to 1996 and pay the shortage. They were paying the royalty Not at the well head.

United Administrator for U.S. District court

PO Box 2024

Charleston W.V. 25328

BA Number 5015165001  We received about $1000. for the shortage on the well head payment.

This was July 2009. They sent us lease modifications for the rights we had to sign to get the money.  We opted to keep the price at the well head for the payment.

It went back to June 1996.   1 866 475 7755.  That is Dominions Number to talk to they about the payments or otherwise.  Remember this is July 2009.  My friend went to Court representing the people in the suit. It was in Clarksburg W.V.

Permalink Reply by Denver Gallentine on January 24, 2013 at 6:02am
Brian, yes, the leases I have say that. Most are in West Virginia. West Virginia has the strongest land owner laws in the US which prohibits this (I did not know this when signing previous leases) I was just sent a new lease to sign on another section and have finally gotten smart enough to turn it over to an oil/gas lawyer. I will let you know what happens. - Denver
Permalink Reply by Brian Day on January 24, 2013 at 8:01am

From what I am reading in your post, you are saying that in West Virginia, Dominion tried to take out marketing, proccessing, and/ot shipping costs from royalties paid to leases which stated price to be paid "at the well head."  After a court battle, West Virginia found for the land owners that no such deductions could be taken out of the royalties andthat the deductions had to be paid back retroactively.  If I read that correctly, that is good news for West Virginians.  How well such a ruling would translate to Pennsylvania law or the laws of Ohio or other states is hard to say.  I suppose if some kind of class action suit were brought in Pa. demanding deduction taken out of leases with "at the well head' as base point for royalty calculation be returned and not alowed in the future, then the West Virginia rulings might be used as some kind of presadent.  Such a battle might have to go beyond the state level to a federal level judgement to lock down a clear definition of what "at the well head" means.  The federal courts might have a look at what "held by production" means at the same time.  Such a court case probably won't happen.

Permalink Reply by Denver Gallentine on January 24, 2013 at 8:25am
You are exactly right. I explained the problem w/ the lease to the land man and he offered a little more for the signing bonus w/ no change in wording. That is when I called the lawyer.

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