Royalty payments and the Net Back clause

Has anyone heard of the Net Back clause and how does it affect royalty payments?

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Permalink Reply by Tom R on August 19, 2013 at 6:17am

I'm not a lawyer or an expert, but as I understand it the Net Back clause is about the worst thing they can do to you in a lease. Its sort of like a Market Enhancement clause on steroids. It allows them to deduct ALL post-production costs to calculate a price at the wellhead and pay the royalty based on that rather than the price at which the gas is sold.

Permalink Reply by jett on August 19, 2013 at 12:05pm

So how does the 'gross at the well head' clause differ? I am sincerely trying to understand this.

Permalink Reply by Gringo on August 19, 2013 at 1:08pm
It is standard in all company lease. It goes by many names net,well head price, price realized. Gross at well head is really the same, because all deductions happen after. Ideally the royality language would be to the effect of:x percent of price received at point of sale with no deduction. Royality language differs so much lease to lease. Hope that helps.
Permalink Reply by jett on August 19, 2013 at 2:19pm

Gringo,

Yes, it helps alot! Thank you!

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