Royalties Without Deduction Clause
I've been offered a lease with the following clause. Is it a true and ideal "no deductions" clause? Are the "prorated share of taxes" a typical deduction? Can anyone recommend a better clause, if there is one? Thanks much!
"Royalties shall be paid without deductions for the costs of producing, gathering, storing, separating, treating, dehydrating, compressing, transporting, or otherwise making the oil and/or gas produced from the lease premises ready for sale or use. All oil and/or gas royalty shall be delivered free of cost into the tank or pipeline (for oil) and into the pipeline (for gas), with the exception of Lessor’s prorated share of taxes, measured by volume, on the oil and/or gas royalty."
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Permalink Reply by Frank Walker on
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You oftentimes see the tax sharing clause. It's not a good thing from our standpoint.
You need language saying royalty is based on price received upon sale to a non-affiliated third party. You don't want the gas company to engage in self-dealing. There is more. For really good language you have no choice but to consult a knowledgeable O&G lawyer, a person having experience dealing with the particular gas company wanting to lease you. Crafting this language on your own is a good way to lose huge amounts of money.
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