warning: new rip-off a-borning

With all the various means employed to rip off royalty holders, a new and most serious one is developing.

Oil and gas producers contract well ahead of time to sell their anticipated production downstream at a guaranteed price. With current prices falling as much as 50%, it would be in their interest to pay royalty holders only on the current price. Of course, if market prices rose over the contracted price, they could take the opposite tack and pay on the contracted price. Only an audit of the producer's contracts could reveal this scam. If your lease calls for royalties to be paid on the revenue actually received, it might be a good idea to invoke your audit rights. Only my opinion.

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Permalink Reply by Ronald Robinette on January 3, 2015 at 1:58pm

Well, you gave a lessee's view of the lease, not the owner's view.  I have seen cases actually tried that if the covenants of the lease are violated then the lessor can take the wells and pay the producer the difference in his interest beyond the violations.  The covenants of a lease should and are binding, or legally you could keep the producer off your land for the violation and simply shut the wells in....then iron out the differences in court.  Yes, the producer has the money, but you have possession.

Permalink Reply by Ronald Robinette on January 5, 2015 at 1:24am

Obviously you gave  the 'company's' side of the lease agreement.  I understand that percentages can vary in royalty anytime anyone negotiates a lease for 'whatever' is agreed to by both parties.  It takes two parties to make it necessary to form a contract of any kind, it should, by all rights, take two parties to change a contract to any 'intent', or obligation.  A contract is just that, a contract, and can not and must not be  changed by either party to each one's whim.  If a contract is broken by either then the covenants of the lease are destroyed and the lessee should be the one to have full charge, for that one did nothing to destroy the faith of the lease.

Permalink Reply by Janice L. Hancharick on January 5, 2015 at 7:27am

I fully understand your stand and wish it were true in all circumstances.  But when dealing w/companies having global strings either directly or indirectly, consider --- their att'ys versus a single individual's.  Whose holding the bigger hammer?  One person or a small group can take unfair issues to court when they go sour, but how much clout is there in those circumstances.  I believe in being in a large group, and being involved in large organizations that can make more of an impact in gov't. rule-making and court interpretations of contract law.

Contracts that provide back-door exits for companies in wording right under the rights holders noses will always be out there ... as wrong as it is, they will exist.  And folks will sign them.  Individually none of us is Sampson, but major companies ARE Goliath.

Permalink Reply by beth hamm on January 10, 2015 at 6:17am

Ronald I agree with you and we need to contact legislators to make this happen!!!!!!!!

Permalink Reply by Ronald Robinette on December 16, 2014 at 12:28pm

If there is a violation of the lease agreement then the covenants are broken and the wells can be claimed by the lessor.

Permalink Reply by Ronald Robinette on January 4, 2015 at 4:33am

The only thing I'm saying is 'if it is a good well' then it should be able to pay for itself over the long haul.  There simply is no reason to allow a 'corrupt company' to come in and steal what is yours. 

There are cases whereby the lessee has gone to court and claimed the well, paying the difference in the cost over a period of time.

Anyone leasing should have it spelled out 'exactly what their lease is becoming a part of, or if it stands on its own'.  Today lawyers love to use the word 'intent', that is a way around an agreement of any kind.  Make sure the language is in the contract that at no time can they ever use the word 'intent of the lease'....

Permalink Reply by Janice L. Hancharick on January 4, 2015 at 10:20am

All of the  posts on this subject are  quite eye-opening to anyone reading them. Hopefully they'll get wide readership!  GMS is definitely a site on which one can get an education, @ least most of the time. When such serious concerns arise I'm surprised that no mention is made of the organizations of combined rights owners and local drilling operators that work to equalize fair treatment for all concerned.  Besides being in a strong landowners' group I also belong to NARO, and monitor PIOGA.  These are all in PA but they exist in other shale states too.  Google them to learn how they work on  state and national levels.  All 3 have a strong presence and strive to make a positive difference.  We don't have to feel or be like insects in a hen yard when dealing w/major O&G issues.

Permalink Reply by Ronald Robinette on January 7, 2015 at 5:14am

If you are the lessor your rights should come first and for anyone to consider it a fractional interest is wrong.  If someone is stealing from the lessor then that person or company is 'flat out in the wrong'.  I do realize you are saying that with all the money they have then they can run rough shod over a royalty owner.  That is when the person who owns the mineral should go in and put a lock on all things to it is corrected.

The best way is simply to put a clause in the lease to state plainly that there can be no intent otherwise to deceive, nor manipulate an agreement by the lessee...

Permalink Reply by Jim White on January 7, 2015 at 4:32am

We just were paid for royalties on two new EQT wells as follows (month and price):

June 3.76, July 3.36, August 2.80, September 2.35, October 2.39

If prices were contracted "well ahead of time", wouldn't the prices tend to stay nearly the same? Why the big drop?

Also interesting is that this well was right beside another Marcellus where we have been getting paid for NGL for two years. The two EQT wells were supposedly all dry gas.

Permalink Reply by frank speaker on January 8, 2015 at 4:14am

This is the problem  I've been facing. My lease says my royalty is based on the amount "actually received", not some undefined price on some undefined date which can  change  any time at the discretion of the lessee without notice or explanation. And we have no way of knowing what was actually received, because these companies each have their own contracts,  possibly with rebates or bonuses, plus they have hedges to these contracts. They have no audit done by the state on these sales, nor a close audit on production figures.

Placing language in individual leases will never solve these problems. What is needed is state law and state audits. I strongly suggest that we begin drawing up legislation and contacting our state legislators for help and support.

Permalink Reply by Janice L. Hancharick on January 8, 2015 at 7:45am

Some landowners have been receiving royalties from various fields across the country for decades. We're a mobile society. These folks will readily tell anyone listening that $$$ received is NOT a specified amount in each check for many reasons.  First: There is not an infinite amount of oil/gas in any location. 2nd: As we all know by now the market prices of these resources fluctuate.  3rd: Prices are driven by demand, competition, and the ever-increasing uses for oil and natural gas ... wet or dry. 4th: As natural gas itself is being used increasingly as a ready resource in it's own production activity, @ what point do leases specify when monitoring for pay-out begins?

I'm sure these are not all the reasons, but @ any rate the focus should indeed be on Frank's last sentence.  

Organizations like NARO keep a vigilant eye on and work towards fair treatment for landowners.  It's countrywide efforts keep pressure on lawmakers and O&G companies to do what's right.  Yet how many individuals have joined?  In PA PIOGA  works for fairness on the side of independent O&G companies.  Each state participating in the industry needs organizations like both of these.  Neither can exist without the other ... landowners w/resources and/or companies to develop and market them.  Lawyers and auditors are a good match to add to the mix.

Permalink Reply by Jim White on January 9, 2015 at 11:37am

I have heard that the companies are now using the price of gas to offer lower bonus monies. Is there any argument to use to counter this?

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