I am looking for the simplest language that a landowner should use as a royalty clause in a lease?

I am looking for someone to post the best landowner language that you may know of that I can use as a royalty clause in my lease. thank you in advance for your help.

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Permalink Reply by Oliver Eastern on February 3, 2013 at 2:10pm

Steve,

This may not be the very best, but it is the best/simplest language in my opinion:

 

The Lessee shall pay to the Lessor twenty percent (20%) of the higher of market price or gross proceeds received by Lessee at the point of sale for all of the Leased Products produced from each and every well on the Leased Premises or on lands pooled therewith. Lessor has no responsibility for any costs or expenses in connection with the activities and operations of Lessee including, but not limited to, drilling, testing, completion, producing or post-production costs, construction, transportation, dehydration, separation, compression, gathering, processing, and marketing; such costs are never to be taken into account when calculating gross proceeds. If the sale of Leased Products is to an affiliate of the Lessee, royalty will be based upon the higher of gross proceeds or market price at the point of sale.

 

-Oliver

Permalink Reply by Frank Walker on February 4, 2013 at 7:28am

Something to keep in mind:  It's important the point of (actual) sale not be at the wellhead.

The way NG is sold today, actual sales are solely of finished gas.  So clearly and obviously, that never happens at the wellhead.  Problem is, most leases do not force sales to be of finished gas only.  Instead, many leases say Lessor shall not be charged for (insert laundry list here), plus the kitchen sink.  No entry on that laundry list, though, protects Lessor if gas is (actually) sold at the wellhead.

Finally, sales at the wellhead must not be confused with price referenced back to the wellhead, something that is routine with poor leases.  But simply because wellhead sales do not happen today, simply because they are not industry practice today, does not mean they will not happen in future . . unless your lease forbids them.  

Permalink Reply by lucky on February 3, 2013 at 7:38pm

I find that the more complicated you make the language the easier it is to circumvent.. for example is there really a need to list all things that can't be deducted instead of just saying "a gross royalty without any deductions". I agree with the arms length transaction to a 3rd party.  But what value  is to be used for the calculation of royalty? well head, retail, avg. market price, point of sale, etc. 

What language gives one the best chance of getting a fair royalty?

Permalink Reply by lucky on February 4, 2013 at 4:54am

How about something as simple as this?

ROYALTY PAYMENT – For all oil and gas, along with all hydrocarbon and non-hydrocarbon substances produced in association therewith, Lessee shall deliver, without deductions whatsoever, to Lessor, a gross royalty of _______ percent (     %) of all proceeds realized by the Lessee, for that produced and marketed off the leased premises.

Permalink Reply by melissa humphrey on February 4, 2013 at 11:14am

fwiw costs of drilling testing etc can never be charged to the royalty interest owner.

and of course we all want protection from decuctions coming out of proceeds but do know this isn't a trick rather it is economics and wording will effect the royalty offered.

 

too simple but looks like so much gas ahead for a decade, protection fm gathering deductions will probably be more important than 2% in royalty.

 

 

Permalink Reply by lucky on February 4, 2013 at 11:27am

Melissa, you said "can't be charged against landowner's royalty", I think maybe you meant to say"should not be".

Permalink Reply by mark on April 27, 2013 at 12:34am

melissa;

what the heck is FWIW the land man we are dealing with right now actually brought to our attention at the well head would not be a good thing as far as royality goes we are stuck at 17% and trying to make the most of it how about this

 ROYALITY PAYMENT:  THE LESSEE SHALL PAY TO THE LESSOR SEVENTEEN PERCENT (17%) OF THE HIGHER OF MARKET PRICE OR GROSS PROCEEDS RECEIVED BY LESSEE AT THE POINT OF SALE FOR ALL OF THE LEASED LANDS CONTAINED THEREWITH WITH THE LESSOR TO BE HELD HARMLESS TO ANY AND ALL POST PRODUCTION COSTS OR FEES IF THE SALE IS TO AN AFFILIATE OF LESSEE,ROYALITY WILL BE BASED UPON
UPON THE HIGHER OF GROSS PROCEEDS OR MARKET PRICE AT THE POINT OF SALE really looking forward to any and all responses please don't be afraid to hurt my feelings O&G guys aren't afraid at all  THANK-you guys

Permalink Reply by wyalusing jim on April 27, 2013 at 3:29am

the short answer is that the simplest language isnt gonna be all that simple anyway.

where will the volume of gas be measured? what about line loss or gain?

regarding deductions, the words "deductions of any type or kind whatsoever" are nice to have, and also that deductions may not be taken "directly or indirectly".

point of sale? good luck there.

how about taxes?

hump is right, production costs are not typically charged to a royalty owner, there is an implied covenant that says that all costs incurred prior to production are borne by the lessee. but it is also a well established concept that unless there is specific language to the contrary, post production costs are borne proportionately between lessor and lessee.

you want good language to maximize your royalties? get good legal help.

wj

 

Permalink Reply by rmc on April 27, 2013 at 9:28am
Why don't you pull up a copy of the Freindsville group lease and look at there royalty language.
That's what we did when we where trying to write our lease just kinda try to find every lease you can and study them all and pick out the parts you like.
Just rember to leave room for negotations the company won't like everything you want.
PS Just don't forget to get an professional gas and oil lawyer to review you're lease before signing.And also make sure the lease you are signing is exactly the same lease you all agreed to word for word.
Permalink Reply by rmc on April 27, 2013 at 9:32am
I just googled Freindsville lease to make sure it still comes up and it does.
Permalink Reply by mark on May 5, 2013 at 4:32am

W J please define good legal help we are very much going to have the lease reveiwed before we sign but really who do you trust ? I have one in mind but any recomendations will be considered   mark

Permalink Reply by wyalusing jim on May 5, 2013 at 7:44am

I do not make recommendations for legal help. the main reason for that is that I have never used a lawyer myself.

the reason I suggested that you seek it was in response to your specific question about "best royalty language".

and I think that it's important to keep in mind that possibly the very best lawyer that you could obtain in crafting lease language, may not be able to get that language accepted by a gasco.

a friend once said that we should remember that 10% of all lawyers graduated in the bottom 10% of their classes. something to keep in mind.

it seems to me that choosing a lawyer could be as daunting a challenge as negotiating a gas lease. afterall, they aren't likely to disclose their shortcomings to us any quicker than the gascos.

I think that before I engaged the services of a lawyer, I would vet their credentials and experience as due diligence calls for.

I would also check out any doctor who would be cutting me open to see if he is any good and worth what he charges.

wj

 

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