I am looking for confirmation that some MR owners in Roosevelt Co.(or nearby) have been able to negotiate a true "no deduct" royalty clause with Brigham (or others) in the last year or so. Own MR in section 23, 28N, 57E. Trying to finalize lease. I would appreciate any feedback from anyone actually successful in having this language inserted in their leases.
Has anyone signed new leases this year in Roosevelt Co.?
Since I have been around wells and consulting people for 20 years and have never heard that term, you may want to explain for new viewers?????
I think there was a recent court decision that cost free and free of cost actually meant that the lessor didn't have to pay for part of the well and not that you would not be charged for everything post production. I hear that alot of people who didn't have deductions from their royalty for gathering, dehydrating, seperating, compressing and marketing/transporting now do have deductions for that, hence the language has changed now, to no deducts. In ND pugh clauses for depth severance that mention strata may not provide any protection since I have heard that the Bakken and TFS have been defined as the same source, I believe. But your clause may work if if it is based on number of feet of total verticle depth. Isn't it wonderful how the words in the lease may not change but the meaning of the words can be reinterpreted at a later date to the oil company's benefit?
Dctex99 said:
Since I have been around wells and consulting people for 20 years and have never heard that term, you may want to explain for new viewers?????
I am following up on an earlier post concerning language in a royalty clause, where the oil co. reserves the right to deduct from the MR owners royalty payment "any reasonable costs incurred by Lessee, whether on or off the leased premises, in transporting,gathering,compressing,delivering,processing or otherwise marketing or rendering marketable and/or more valuable such gas or other substances covered hereby...".
Some other posts have said that can result in significant deductions from the MR owners royalty.
Trying to verify if it is actually possible and has been agreed to recently in this area of Montana.
I think if your lease does not forbid such deductions it is left up to the lessee/operator. What do you think they will do ? There was much said on the forum and here in Tx a months ago from people who never had such things deducted in past years under cost free/ free of cost language, found their royalty check much diminished. Add to that the operators hedges running out and the price received for gas being 40% of what they were receiving, I think a mineral owner could find themselves in shock at 60% less in their royalty check and charges against their royalty on top of it. I received a call just this weekend from a friend trying to help another friend who I think this situation affected. Best yet is the operator gets to deduct from his taxes the equipment to process the gas and most likely is using gas produced on lease to run the equipment and not paying you a royalty on this gas used to process not just your gas but the operators % of the gas also. Buddy Cotten has an interesting blog on "Gas Produced and Sold", I recommend it.
Williams said:
I am following up on an earlier post concerning language in a royalty clause, where the oil co. reserves the right to deduct from the MR owners royalty payment "any reasonable costs incurred by Lessee, whether on or off the leased premises, in transporting,gathering,compressing,delivering,processing or otherwise marketing or rendering marketable and/or more valuable such gas or other substances covered hereby...".
Some other posts have said that can result in significant deductions from the MR owners royalty.
Trying to verify if it is actually possible and has been agreed to recently in this area of Montana.
I own mineral rights in 26 and 35, both just south of you and are leased to Continental Resources in 2010. By "No deduct" do you mean NO state taxes withheld or absolutely NOTHING withheld?????
I found out what you meant by "no deduct"; I think the oil companies will just pay you less! Would you rather have $75 a bbl with some deductions, or $70 a bbl without deductions, and the bottom line is probably exactly the same???? They have millions tied up in drilling and fracing so I think they deserve a good net income from that well!
Dctex99 said:
I own mineral rights in 26 and 35, both just south of you and are leased to Continental Resources in 2010. By "No deduct" do you mean NO state taxes withheld or absolutely NOTHING withheld?????
Dctex, I think that the no deducts primarily concerns gas produced. Oil seems to have relatively modest charges to get it into marketable form. Gas on the other hand seems to require alot of modification to get it into marketable form. Just because the operator charges you for the enhancing of the gas does not mean that you automatically get the price that the enhanced gas brings. Why do you think people use the language of first arms length transaction and cost of enhancement may not exceed the increased value the lessor receives for the gas. It's because you could get charged and not receive the price the enhanced gas sells for. I did not mean no state taxes. We all pay taxes and if the operator didn't send the state the check for production and severance taxes and deduct it from your royalty, you would have to pay it yourself. I don't mind the operator making a good return on his investment, and I think he can and still leave something for the mineral owner. As for dry holes, poor wells and mechanical problems causing the loss of a good well, the risk is why the operator getting the 72.5% to 87.5% side of the bargain, depending on where your minerals are. I will say this, there is no reason for all the convoluted language and workings, unless it provides a profit for the lessee, or they would simply have a contract that your interest receives XX% royalty on whatever the operator receives in the first arms length transaction, or if he sells it to an affiliate, your royalty should be based on a published benchmark price.
Dctex99 said:
I found out what you meant by "no deduct"; I think the oil companies will just pay you less! Would you rather have $75 a bbl with some deductions, or $70 a bbl without deductions, and the bottom line is probably exactly the same???? They have millions tied up in drilling and fracing so I think they deserve a good net income from that well!
Dctex99 said:I own mineral rights in 26 and 35, both just south of you and are leased to Continental Resources in 2010. By "No deduct" do you mean NO state taxes withheld or absolutely NOTHING withheld?????
I have two recent leases (Daniels & Teton CO.) where Buddy Cotton inserted such language, both companies accepted it without issue; phrases like " ...free of cost into the pipe line..." ...Market value of the gas at point of first sale... ... transportation treating, processing, ...etc... are to be born by Lessee...".