FRIENDSVILLE LEASE AND ANADARKO'S ADJUSTMENTS (DEDUCTIONS)

 

  ... I BELIEVE "The Sales Price for the Oil  and  Gas  shall  be  determined  at  the Wellhead,  adjusted  for  BTU  content, without deductions " WAS A PHRASE FOR THE DAYS WHEN GAS WOULD BE PUMPED DIRECTLY TO A TANKER VEHICLE AND NOT INTO A PIPELINE,

ALSO IT COULD BE INTERPRETED THAT  "The Sales Price for the Oil  and  Gas  shall  be  determined  at  the Wellhead,  adjusted  for  BTU  content, without deductions" WHEN SOLD DOWNSTREAM IS THE VALUE OF THE GAS, (see Section (g) below .

THE PRICE THE GAS IS SOLD FOR IS NOW CONSIDERED THE WELLHEAD PRICE, WITH NO DEDUCTIONS ALLOWED -- THE FRIENDSVILLE LEASE CLARIFIES THIS IN IT'S VERY NEXT "DEFINITION" SECTION OF IT'S LEASE -
(g)  "Sales  Price," shall mean the price received by Lessee for its Oil and Gas sold in an arms-length transaction.
In the event Lessee elects to sell gas produced from the Leasehold

to an affiliated party, then for purposes of computing royalty hereunder, the

net proceeds after taxes shall be at least equivalent to the price paid for gas

entering the Tennessee Gas Pipeline ("TGP") in North East Pennsylvania under

a Zone 4 designation.   Lessor and Lessee acknowledge and agree that there is

no published index price for TPG Zone 4 as of the effective date of this Lease.

Lessor and Lessee further agree to use a price proxy for the TPG Zone 4 index

until such time as a published index is established for TPG Zone 4, or any

replacement zone, should TPG modify its description of such pipeline zone.

The price proxy to be utilized hereunder shall be the Dominion South Point,

located in the pricing table entitled "Appalachia" under the column heading

"midpoint" as published in the "Daily Price Survey" ($MMBtu) portion of the

McGraw-Hill publication, "Platts Gas Daily."   Royalties shall continue to be

paid on a monthly basis, but for purposes of computing royalties, the sale price

of gas shall be calculated on a daily basis by multiplying the allocated daily

sales volumes in mmbtu by the published gas index price per day.

THIS CLEARLY STATES THAT IF THE GAS IS SOLD NOT AT THE WELLHEAD "sales price" BUT TO AN "affiliated party" which in this case is TGP - ZONE 4 - THIS IS THE "sales price" FOR COMPUTING ROYALTIES.


IF THIS SECTION WAS NOT IN THE LEASE IT WOULD APPEAR THAT SINCE THE GAS WAS NOT SOLD AT THE WELLHEAD, THE ENERGY COMPANIES COULD CLAIM DEDUCTIONS FOR THE COST OF BRINGING THE GAS TO A POINT WHERE IT COULD BE SOLD.   BUT SINCE THIS SECTION STATES SALES TO AN "affiliated party" THE SALES PRICE COULD BE  - (IS) -   NOW CONSIDERED THE (WELLHEAD PRICE).

SINCE IT'S BEEN AWHILE FOR RESPONSES TO THIS ISSUE I AM GOING TO SEND THIS REPLY TO OTHER MEMBERS OF THIS DISCUSSION ALSO - THANKS 

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Replies to This Discussion

Permalink Reply by melissa humphrey on September 11, 2012 at 6:09am

What I amtold is wellhead + costs to get it to a saloes point equals the sales point price.

Or sales point - costs equals the theoritical wellhead price.

 

The attorney involved must have been new to Oil and Gas.

sadly, it may be hard fior the Fndsville lessors to get royalty on

gross.

 

 

 

 

Permalink Reply by PLOVER on September 11, 2012 at 7:32am

.. NO THE FVGL IS WELL WRITTEN - NO DEDUCTIONS OF ANY KIND ARE BEING TAKEN FROM OUR FVGL LEASE - CHESAPEAKE, AND STATOIL - NEVER TOOK DEDUCTIONS - MITSUI AND ANADARKO DID - BUT AFTER POINTING OUT THAT OUR FVGL DOES NOT ALLOW DEDUCTIONS THEY BOTH STATED (AFTER CHECKING THE LEASE) THAT  THEY WOULD CORRECT THEIR ERROR AND REIMBURSE FOR THE DEDUCTIONS AND NO MORE WOULD BE TAKEN OUT OF THE WELL HEAD PRICE.  THE WELL HEAD PRICE IS BASICALLY WHAT THE GAS IS SOLD FOR - WERE EVER IT IS SOLD.   THE LEASE ALSO NOTES TGP ZONE 4 AS A PRICE POINT.

Permalink Reply by melissa humphrey on September 13, 2012 at 6:21am

That is good news.

 

Permalink Reply by melissa humphrey on September 15, 2012 at 1:46am

Not to belabor but the industry generally sees "Wellhead" as wellhead. Then it takes gathering, transpo to get it to the usual sales point,  entry into a interstate pipeline. If Talisman is paying at the sales point, that is excellent.

There may be a conflict here between the lease language and industry term interpretation.

Also we don't think gas was put into tankers, it is a gas and yrs back the technology did not exist to pressure it into LNG. Oil, definitely would have been tanked out in most cases and still is.

Good wishes with this. I am interested to know what is up out there.

There must be 50 different sets of royalty language in leases.

Milessa

Permalink Reply by PLOVER on September 15, 2012 at 3:02am

.. APPARENTLY THERE ARE, THE WORDING IN EACH INDIVIDUAL LEASE WILL DETERMINED IF DEDUCTIONS ARE TAKEN, AND WHAT DEDUCTIONS ---- FOR THE ENERGY COMPANIES WILL TAKE ANY DEDUCTIONS THAT THE LEASES LANGUAGE ALLOWS THEM TO. 

Permalink Reply by melissa humphrey on September 20, 2012 at 4:56pm

excellent to hear-

 gathering at .59 is an enormous burden.

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