Market Enhancement Clause

Now we all know that any "Market Enhancement Clause"is not a good thing, although it may be too late for a lot of us. I am not leased with Chesapeake but I wonder if my market enhancement clause is NOT THAT BAD.  The language reads "17.5% of the gross proceeds received by Lessee for the sale of oil, gas and related products produced and sold from the leased premises and accruing to Lessor under this Lease, such royalty to be calculated without deduction, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting and marketing the oil, gas and other products produced from the Leasehold; provided, however, any such costs which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from Lessor's share of production so long as such costs are based on Lessee's actual cost of such enhancements, and further provided that in no event shall Lessor receive a price that is less than, or more than, the price received by Lessee. Lessor's royalty shall bear its proportionate share of applicable production, severance and other similar taxes attributable to Lessor's royalty interest."  I thought perhaps the section that reads that I cannot receive a price that is less than the price they receive saves me a bit, although I know it also means that they can still deduct from my royalties.  What are your thoughts?  Thank you in advance

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Permalink Reply by Travis Keefer on October 18, 2013 at 6:54am

My lease has the exact same wording would be great if some one would reply who has been involved with this situation before, thanks

Permalink Reply by Tom R on October 18, 2013 at 10:22am

What you quote is the standard language for the market enhancement clause. I have it in my lease as well and it does not seem to have any effect on the amount of deductions taken by the companies which choose a loose application of the language. I'm in PA and mine does not include the last sentence about taxes, so I'm assuming you are in Ohio. Guessing this will result in an additional category of deductions from your royalty.

Permalink Reply by Gary L on October 23, 2013 at 5:39pm

Some info on Market Enhancement Clause. Might take awhile to read all this.

http://www.naro-us.org/Resources/NARO%20PA/Penn%20Roar%20Archive/Oc...

Permalink Reply by Dott on October 23, 2013 at 9:55pm

Thanks Gary.  I think you can look at this two different ways, yes some companies may start to take 100% deductions if the settlement is approved but others may not want to because of the negative light it has shone on the industry and /or they may not want to risk a class action law suit against them. Also if PA legislature passes the bill "Roar" highlighted I believe it would be good for us in Ohio. Ohio looks at what other states are doing I'm sure, especially when it will protect the people.

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