What is the difference between the following two Royalty Clause options that are shown below?  

I am most interested in what "Net Revenue" means in Option 1.  Since the word revenue is used does this mean 12.5% Gross less taxes or Net after expenses?

In Option 2 what does "Net Proceeds" mean in combination with the Market Enhancement Clause with the "notwithstanding any language to the contrary"?

Which option is better for the royalty/mineral owner? 

Option 1

To pay Lessor as Royalty, less all taxes, assessments, and adjustments on production from the Leasehold, as follows:

OIL: "To deliver to the credit of Lessor equal to 12.5% of the net revenue realized by Lessee for all oil and constiuents thereof produced and marketed from the Leasehold less any and all Federal, State, and Local Taxes.

GAS: "To deliver to the credit of Lessor equal to 12.5% of the net revenue realized by Lessee for all oil and constiuents thereof produced and marketed from the Leasehold less any and all Federal, State, and Local Taxes.

Option 2

To pay lessor as Royalty:

Oil:  Lessee shall pay Lessor Twenty Percent (12.5%) of the net proceeds received by Lessee for all Oil and by-products produced from or on the Leased Premises and sold by Lessee in an arms’ length transaction, less the same proportionate share of all production, petroleum excise and severance taxes.  In the event that Lessee sells all or part of the Oil produced from the Leased Premises to an affiliate of Lessee, the value thereof shall be the highest price offered to Lessee through Lessee’s bidding process for the sale of such Oil less the same proportionate share of all production, petroleum excise and severance taxes.

Gas:  Lessee shall pay Lessor Twenty Percent (12.5%) of the net proceeds received by Lessee for all Gas and by-products produced from or on the Leased Premises and sold by Lessee in an arms’ length transaction, less the same proportionate share of all production, petroleum excise and severance taxes.  In the event that Lessee sells all or part of the Gas produced from the Leased Premises of or through an affiliate of Lessee, the value thereof shall be the higher of (a) the sales price received by Lessee, or (b) the sale price received on all of such affiliate’s sales of the aggregated production volumes, where such aggregated production volumes include production from the Leased Premises during applicable months of sales less the same proportionate share of all production, petroleum excise and severance taxes.

Market Enhancement.  It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all royalties for Oil, Gas or other production (including but not limited to natural gas liquids and/or condensate, such as ethane, propane and butane) accruing to the Lessor under this Lease shall be paid without deduction, directly or indirectly, for the costs or expenses of Lessee (or an affiliate of Lessee) relating to producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the Oil, Gas and other products produced hereunder; provided, however, Lessee may deduct from Lessor’s royalties accruing under the Lease, Lessor’s proportionate share of any cost or expense actually incurred and charged to Lessee by a third party that is not owned or controlled by Lessee and relating thereto on the express condition such costs or expenses are necessarily incurred to enhance the value of the Oil, Gas or other products, including transforming product into a marketable form, and in any such case, the computation of the Lessor’s royalty shall include the additional consideration, if any, paid to Lessee as a result of any enhancement of the market value of such products.  However, in no event shall Lessor receive a price per unit that is less than the price per unit received by Lessee.