Addendum: Two Addendum Provisions, good and/or bad

The following two items are included in my addendum. 

Good or Bad? Why?

 

A)..ROYALTIES WITHOUT DEDUCTION:  Royalties shall be paid without deductions for the costs of producing, gathering, storing, separating, treating, dehydrating, compressing, transporting, or otherwise makeing 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.

 

B)..OIL AND GAS: This Lease shall cover only oil and gas and related hydrocarbons that may be produced through the well bore; and all other minerals, including, but not limited to, lignite, coal, uranium, sulphur, gravel, copper, and metallic ores are not included in this Lease.

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Permalink Reply by Bill on September 16, 2011 at 3:15am
Terry,

I have those same two items in the lease I am contemplating signing. My attorney says they are favorable to me as landowner. The no deductions clause is a real good deal - it's worth about 2 to 2.5% in additional payments.

Good luck!

Muddy
Permalink Reply by Terry W. on September 16, 2011 at 4:10am

Bill, that is good news to hear.

I presume you are talking to Shell?

I am waiting for them to get down with a court house search

so we can go ahead and sign.

We aware that up to 90 WORKING DAYS" before you get the bonus money,.

That takes you to the end of January.

There goes my Florida winter trip for three months.

Lets hope that it only takes 30-45 days.

Permalink Reply by Bill on September 16, 2011 at 4:25am

Yes, I am talking to Shell.  I found the person I am dealing with to be pretty straightfoward, and reasonable.  We are at the same point in the process.

 

Actually, in my position, the bonus coming in January might help with taxes a bit more - I can fund my IRA for this year and next and write more of the income off!

 

In any case, a rather "high-grade" problem to have!

 

Bill

Permalink Reply by Mickgyver on September 16, 2011 at 9:37am
hello where is Shell leasing , also what kind of offers are they making , I am checking to hear all offers near the ohio valley area , it is good to keep track on these companies because it is starting to attract the big boys now
Permalink Reply by Terry W. on September 16, 2011 at 10:30am

mick m

We are talking NW Pennsylvania.

Shell @ $3,000 per acre and 15% without deductions.

No competition in area.

Permalink Reply by Jim Litwinowicz on September 16, 2011 at 11:16am
Where in NW Pa?  Don't be so sure about no competition.
Permalink Reply by Jim Litwinowicz on September 16, 2011 at 11:21am

Be careful what you sign.  The standard lease is full of loopholes and trapdoors. Look for where it says they have the right to lay pipelines and note that is plural.  They will have the right to lay any pipeline they want from any well or compressor station without paying you any right-of-way.

 

Lots of other stuff like build a miniature refinery. Or a regional water containment pond. Or put ten acres into a unit and tie up the entire parcel for 30 years. Or use your land for storage. Or drill one shallow vertical well and HBP the land for decades.  Or.........

Permalink Reply by Terry W. on September 16, 2011 at 11:33am

Jim

That is one of the reasons to seek out a good attorney.  A Good one, not one

that keeps making changes just to get into you pocket.

Nobody in their right mind would sign a boilerplate.

I like to have a more positive attitude. It is like knowing where you stand

with the rest of your neighbors in relation to position on a unit.

 

Am located in the Boyers area.

Phillips/Exxon is not competative with Shell.  Have had a few discussions with them

BLX has a well on the other side of Eau Clair...too small

 

 

Permalink Reply by Farmhouse on September 16, 2011 at 5:21am

Terry,

I prefer them to specify "free of all costs whether PRE or Post production".

 

What taxes are they referring to? Severance, Production, the CEO's Income tax? Local, state or Federal or all of the above? Also make them spell out what your "prorated' share will be calculated upon. In other words: '..with the exception of lessor's prorated share of any then applicable Local, state or Federal severance or production taxes, in which case the lessor shall be responsible for 12.5% (ex.) of such tax and the lessee responsible for 87.5% of such tax on production for any applicable sales period. For the purpose of satisfying and complying with afore mentioned taxes, Lessee will deduct 12.5% from any monies due herewith to lessor for said sales period."

Something like that maybe. With these leases more is better when it comes to spelling out the details. Have your atty. tighten up the language. Leave as little to interpretation as possible. Twice now I've used the strength of the language in my lease to arrive at compromise with my Producer when they wanted to do something the lease said they couldn't. Good luck, hope you don't mind the suggestions.

 

 

 

Permalink Reply by Bill on September 16, 2011 at 6:31am

Good point, farmhouse, thanks!

 

Bill

Permalink Reply by craig on September 16, 2011 at 8:43am

Farmhouse: I agree with your statement about free of all costs, however I'll bet that you will get less % royalty in the lease if this language is included. You will not get one over on these gas companies no matter how hard you try. Good tight language is the best you can do i believe.

I'm not so sure that these 'no deductions clauses' are going to be what some think. The way I see it is that if you are going to be paid at the wellhead then the product at the well head will be worth considerably less i imagine, since it is still 'raw' , unprocessed and unsellable.  I can see the companies using this against you in this scenerio. Now if this was a dry gas area, then it would be the right thing to sign. 

Maybe i'm wrong, but as a business man it sure seems like that is what will happen. 

Maybe someone who actually knows how this works will chime in.

 

Permalink Reply by Tom F on September 20, 2011 at 3:20am

I don't understand the "dry gas area" in your comment

 

Tom F

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