Auditing of your royalty rights

I read the BP lease with the Trumbull landowner group. I personally think it is not a good lease. Here is why: People agreed to an arbitration clause for any differences that may arise and gave away rights to go to court....very bad idea. The cost of arbitration bargained for is at a minimum 25K to get in the door for each side and you have limited appeal rights if you lose and that arbitration is in Cleveland, Ohio not with a local body. And most importantly, the oil/gas company has the right to deduct from your royalty payments their expenses to bring the gas to market. This means the cost of fuel, electricity, marketing, etc. One of the most hotly litigated issues in all of the shale plays in the USA is in the area of what constitutes a "cost" that can be deducted from your royalty payments. Problem is that if the oil/gas company deducts unnecessary expenses from your royalty payments you have to pay big money to arbitrate the issue and it is not cost effective unless it is a large sum of $.

I am curious to any thoughts/discussions on this matter? How and will you independently audit the wells? If so, what will be the process? What index will be used to determine price? Market price at the well or point of sale? What protections are in place for the sale of the liquids/gas to prevent them from being sold at a cheaper price to a subsidiary of the o/g company? 

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015334grltd9mPermalink Reply by 015334grltd9m on March 14, 2013 at 4:17pm

Folks,  I revisited Marty's post and did not realize how bad WE all acted in a waste of energy.  The sad thing about the post was everybody was fighting amongst ourselves wherein the fact  was  most of us were on the same side. 

Now por favor, I know Marty from way back although he is much younger than I, he is a good man and a smart one at that.  He graduated from one of the top law schools in the country, so why waste his law intellect here when us landowners need all the help we can get. 

I will take the high road here and ask the good atty. to come back into our fold here, let us all try to refocus with him and I guarantee he will be an asset.

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on March 14, 2013 at 4:28pm

Mark,

           To get around the paying for the O&G Company getting you product to market, ask for Gross Royalties. Otherwise you get Net Royalties and pay as much as 3% of the 12% royalty for instance for a new total of 9% royalty.

Do a seach on "Auditing Well Production". I've seen this topic discussed several times on GMS.com.  

Ron

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