Can anyone tell me if they know what the actual net after the expenses are for the royalties, we are looking at several leases and its hard to determine what the true net is. I like the verbage in the Friendship lease , being pure before any expenses.

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Greg: the actual net after expenses depends on what expenses are allowed, the individual contracts involved if some expenses are deducted, etc. Some leases allow the deduction of taxes (production/severance), some allow the deduction of transportation of the gas to a pre-determined sales point, some allow the deduction for compression, treating, etc... The expenses to be charged should be outlined in the lease; if it is silent on expenses, you are in for a lot of headaches as the operator will define this using their interpretation and you may have to get nasty to sort it out.

While the Friendship lease is good from a royalty owner standpoint, it may slow down the amount of drilling as it puts the operator at a pretty big disadvantage relative to other leases. All things being equal, would you drill a well on a lease that allows no expenses to be deducted and carries a 25% royalty, or would you drill on a lease that allows the deduction of reasonable expenses to make the gas "sale-able" and only carries a 12.5% royalty? I know which one I'd drill on first!

But most are trying to get everything they can in the lease and if a company is willing to sign it, why not!
Greg, Mmmark is right about expenses. if not outlined in leases they could deduct everything & anything, could turn out profitable for them, but not so much for you! your 12.5% could end up being 3-5% ! But i don't think Fortuna would be paying out the big money if they did'nt plan on drilling every inch of property they could! I think the bar has been raised , and co better deal with it or get left in the dust by fortuna and chesapeak.

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