Overriding royalty from old well--is this the same as gross royalty?

I have an old HBP well, drilled in the 1980's, still producing.  No production costs have ever been taken out, just the taxes.

My lease says the royalties would be paid as follows:  "...as royalty, free of cost the equal of 1/8 royalty part of all oil produced and saved from the premises.  and on the gas :  "...To pay the lessor, as royalty for gas marketed and used off the premises and produced from each well drilled thereon, the sum of 1/8 of the wellhead price paid to Lesse per thousand cubic feet  of such gas so marketed...

I've always been told that this an 'overriding ' lease and that no cost could be taken out.  Now, if I would ever be put into a producing Utica well, will my royalties be subject to these production costs just like these Net leases are?  Or would this lease be considered a Gross lease?

 

Thanks in advance

 

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Permalink Reply by TM on December 23, 2013 at 9:48am

How would you have an overridingroyalty? Are you a working interest owner in the well?

Permalink Reply by Sylvester Deal on December 23, 2013 at 1:29pm

Brat,

An overriding royalty refers to an interest carved out of the working interest and given to a party that had some influence in developing the play or well, such as an engineer,  geologist, landman, company that transferred drilling rights, even lessor can negotiate an override in lease.  Overrides are treated like lessor royalty, no production cost but subject to gathering, transport, market costs.

The operator has been kind in not charging downstream costs, wellhead price can only be determined from sales price less cost to deliver to sales point.  This explains the higher percentage retained for costs when gas price drops.  As for oil, purchasing companies post prices based on some market price adjusting for oil quality and local area gathering costs.  Check out this website: http://www.ergon.com/prices

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