Most new leases either expressly allow for the deduction of costs either by listing the costs to be deducted or by providing for a royalty on the "net proceeds." Does anyone have one of the older type leases that provides for a royalty on the "market value," or the "gross proceeds" or that has  "at the well" language? If so, I'd be interested to know.

 

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Thank you Philip! This is very helpful.

Yes my lease is about 30 years old and think it says market value.  I am not in any Utica well unit and am wondering just what will happen should I be included in one.  At present , no deductions are taken out of my royalty checks, other than some kind of tax. I am in Ohio

Thank you Brat. I would be interested to know what gas producer signed the lease thirty years ago and which gas producer now has the lease and is paying your gas royalties. Also, it is not always clear from a royalty check stub whether deductions have been taken and, if so, how much and for which services (e.g., gathering, compression, dehydration, processing, transportation, marketing, etc.). I would be interested to know why you think no expenses have been deducted.   

In my opinion I would think the old leases can be just as good or better as any 20% net lease. With a net lease the driller can add costs and it can be subtracted from the gross Income. Example:

$100,000 royalty x 12.5% = $12,500

$100,000 royalty - fees= say $50,000 x 20% = $10,000

Kind of at the mercy of the driller and I would think that they would add on all the fees that they possibly could. I don't know what kind of fees are applied though or if there is any restriction to what can be applied.

Jarrad, I quite agree with your math. But it assumes that gas producers don't deduct costs under the old leases. If they do (and some do), the landowner gets the short deal both ways (low 1/8 royalty and deductions). The check stubs can be misleading. They may have a columns that says "well gross" and "royalty owner share" but the "well gross" they use is the net proceeds of the sale of the gas (i.e., gross sales price less post production costs).

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