Our attorney pointed out something interesting today. We were offered a gross, no deduction lease for some property in a couple counties. It was gross "at the wellhead". One county is dry gas only (Doddridge) and one county could be either wet or dry (Tyler). The interesting part is that we might want the price at the wellhead, not at the point of sale if it is dry, since the point of sale price might be lower. If it is a wet gas well, the price would probably be higher at the point of sale after processing. However, if we want that price, they want to take out processing charges. The thing to remember is that just because they offer you a gross, no deduction lease, THAT might not be the best way to go if you had to pick one or the other. Obviously, we all want a no deduction either way, but if you had to choose AND you are in a wet gas area, the choice is not as easy as it looks since you might be better off with the processing fees taken out and getting your money at the point of sale. You need to find out how the company determines wellhead pricing. Also, we have one well in Wetzel which is producing wet gas and another well just a couple hills away which is only dry. Makes the choice that much harder. Any thoughts about this?
I know that Antero's Market Ehancement clause includes language that says that the lessor gets what the company gets, no more, no less. What the lease says and what happens in real life could be quite different, of course.
Thank you. I wonder if it includes hedges, derivatives, and kickbacks. These are important because an E&P it seems will drill and pay lesser royalty amounts, when prices are down, but still capture higher revenues due to its hedges, etc. I am ok with getting what the company gets, and I would want to include all financial instruments for the well. Not sure that is truly the case.
Good article regarding transportation.
Who, may I ask, goes to the wellheads and buys gas,or oil,or wetgas products????
There is no such thing as gross, wait till you are unitized and placed into production and you see the royalty statement, there will always be this column called deductions with no explanations what they are for, its a fact of life in the oil and gas business. The only thing that is GROSS is the amount of money they will take out of your royalty check.
Your assertion is not universally true, though it is true in far too many instances. I myself, for example, with a no deductions lease, have never had a deduction taken out of my royalty payments; at least not yet over three or four years. And trust me, I'm far from being alone. I do think deductions might lie ahead for me, though, in the future.
Also, as I've just written nearby, there is another way for the gas companies to penetrate a "no deductions" lease, by changing the point of sale.
If your lease does not specify deductions, then the company cannot take them. Take some time to read the Tawney vs. Columbia Natural Gas case.
If they're taking deductions, and they're not specified, then you are getting ripped off.
I suggest you read through your lease, and if you're not sure about what it says about deductions, talk with your attorney. If you need an attorney, give me a call. 304-473-1403.
Natural gas, traditionally and historically, has never been sold at the wellhead. But this is not to argue it cannot be accurately valued at the wellhead, provided the "netback" calculation is done in an honest and forthright manner . . . . which too often it is not!
But there is more, and this should be cautionary for us landowners:
Simply because natural gas is not today sold at the wellhead, one would be unwise to assume this never will or could happen. Believe me it could, and not too much imagination is needed to envision how! Moreover, for most of us, should wellhead sales ever commence, our leases will not protect us from receiving for our gas a price attributable to the lower value of gas at the wellhead.
The only leases which protect from this are those which specifically prohibit wellhead sales. Very few leases contain this provision. Personally, I've never seen even one such lease, though I know a few exist. I can tell you I do not have that provision in my lease. I surely wish I did!
20% royalties! Very nice!