Royalty Language

Hello:

This is my royalty addendum language. Does it sound okay? What does market enhance gas clause mean?

 

Lessor’s Royalty: For all Oil and Gas Substances that are physically produced from the Leased Premises, or lands pooled or unitized therewith, and sold, Lessor shall receive as its royalty seventeen percent (17.00%) of the sales net proceeds actually received by Lessee or, if applicable, its affiliate, as a result of the first sale of the affected production to an unaffiliated third party, less this same percentage share of all production, severance and ad valorem taxes. In the event Lessee compresses, treats, purifies or dehydrates gas, including casinghead gas or other gaseous substances (whether on or off the leases premises) or transports such gas off the Leased Premises, Lessee in computing royalty hereunder may not deduct from such price the actual charge incurred by Lessee for each of such functions performed. However, if gas is processed or gathered, transported, or treated by an unaffiliated third party before or at the point of sale, then Lessor shall receive its royalty on the net proceeds received by Lessee after such third party gathering, treating and transportation charges. For royalty calculation purposes, Lessee shall never be required to adjust the sales proceeds to account for the purchaser’s costs or charges downstream of the point of sale.

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Permalink Reply by time will tell on August 5, 2012 at 7:28am

Marcus you need to take notes on who you dis .

As for me I do .

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on August 5, 2012 at 5:21am

And by the way...I have a masters degree from Wharton...but I still have my street smarts.

I take you at your word about the MBA.  The street smarts on the other hand...you'd think Wharton would have taught you to be a gentleman.  No such luck.  

1w1vl8clda7t4Permalink Reply by 1w1vl8clda7t4 on August 5, 2012 at 5:28am

Oh I'm a gentlemen...but only when the circumstance calls for it... I'm not one of those educated liberal puppets...I still have a mind of my own.  

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on August 5, 2012 at 5:41am

Yeah, you've really operated with the comportment of a gentleman.  A true gentleman acts as such especially when the situation warrants otherwise.  Any asshole can be friendly when they're in company of friends and family.  A real man doesn't lose his temper get overly emotional when he's told something he doesn't want to hear.  

1w1vl8clda7t4Permalink Reply by 1w1vl8clda7t4 on August 5, 2012 at 6:02am

Ummm...yea you’re right...well educated head football coaches in both the NCAA and NFL have the same demeanor on and off the field.

 

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on August 5, 2012 at 6:12am

It has nothing to do with education or profession.  Being an ill-tempered jerk isn't ok, unless you're a nitwit like Donald Trump, I suppose.  Unless you're paid to be a loose cannon it isn't a preferable disposition.  I find it hard to argue the inverse.

Permalink Reply by time will tell on August 4, 2012 at 4:35pm

Can't wait for the time to come BGJ .

Permalink Reply by melissa humphrey on August 5, 2012 at 3:15pm

Baloney all over the place. 1. Anything can be negotiated 2. There is no natural obligation of the lessor to share post production costs. 3. re enhancement, it is worded to sound good to the lessor but fine tuned language is what will determine.

 

Gas has no value at the well site, OK, and in whose interest is it to get it to a market, the lessor’s 15% or the lessee’s 85%?  This really isn’t about what is wrong or right, it is math, business. A lease that pays on gross with no consideration for post production costs is more valuable to the lessor and in theory the royalty rate/bonus would adjust.

 

The bad part is the game playing where the lessor doesn’t understand what is going on.

 

If I were a gasco and the potential lessor insisted on payment pre post production deduction, I would simply adjust, a 18% R becomes a 16.5% or similar.

 

The constant dishonest and misleading culture of the landman is offensive.

Melissa Hunphrey

Permalink Reply by melissa humphrey on August 5, 2012 at 3:17pm

By the way, I have seen EOG leases with standard Market Enhancement language and they are acdepting it as royalty paid on true gross.

Forgetting their own self-interest, gas companies have an unwitten obligation to market extracted gas.

Melissa Hunphrey

 

 

Permalink Reply by joe pierson on August 5, 2012 at 3:57pm

True, if the gas company adds gold dust to the raw gas increasing the sale price from $2 to $2000/mcf you are free to ask for 18% of the $2000 instead of 18% of $2 without regard to it's whether it is fair or not.

In any case, as people who are receiving royalties know well the actual check you receive depends much less on the deductions you are or are not getting (maybe +/- 50% variation), but much more on the actual price of gas(+/-1200%), how many acres are in the unit (+/-10,000%), and how many wells are in the unit(+/-600%). A time limited full development clause could be worth much more then a non-deduction clause, if you had to choose between the two.

Permalink Reply by Kenny on August 5, 2012 at 4:42pm

Melissa

The idea of paying less royalty based on the landowner's request for pre post production deductions is nice in theory but landowners never agree to it.  Landowners hear of Company A offering 20% royalties, a majority of landowners wouldn't agree to sign at 17.5% or 18% gross because they just see the other company offering 20%.  I have seen it a million times, landowners get blinded by the money side of it without considering the other provisions of the lease.

Also keep in mind, landowners aren't the ones making the decisions on this, we are following the directive of our respective clients and we don't necessarily know their end game.

Permalink Reply by dan gladyszewski on August 6, 2012 at 3:27pm

  This has become a very heated subject, as can be expected. Reps or agents of individual companies have their side and, of course, landowners- their own. I like to hear both sides of any story. I enjoy a good debate. It would be best if everyone would keep it professional. I can state that I am on the side of the landowner and don't have a mba in anything. I am a poor working slob like most of the people on this site ( not meant in the derogatoy sense). I busted my A#$ on my small farm to keep things going, almost losing it. Tears and sweat. BGJ brings up many excellent points , as have most of you, this is how we learn. To attack someone because we don't agree isn't proper. In my opinion, listen, and maybe we as landowners can see how the other side sees things and then plan strategies for our best interests. Pause before we type.  

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