Out of curiosity and being sort of new at this (my share of interest in Weld County mineral acres was inherited just a couple years ago) I thought it might be interesting to chart the decline curve of the new wells drilled on our property last year. I went by “property quantity” rather than a dollar figures due to the fall in oil prices. In eleven months they’re producing about a third of what they did initially which from what I’ve read is pretty good.
Then I noticed something else that seemed kind of strange, what I’m going to call an incline curve. This time I went by owner net in dollars then added up the owner deductions leaving out any kind of taxes and then did a percentage. Every month the percentage of deductions to the owner net increased and with some consistency, started out about 5% and a year later it’s 15%. Maybe I’m missing something here, maybe some costs are static and have no correlation to production. When you inherit mineral rights it’s not like somebody hands a manual and says, “This us how the oil business and oil royalties work.”"
So I dug my way through the Colorado Supreme Court decision in Rogers v. Westerman Farms http://www.cobar.org/opinions/opinion.cfm?OpinionID=479
But only came away from that a little bit wiser. I liked the part about when the lease is silent about deductions that they are then borne by the leasee but then they went on to indicate that some post-production costs were to be shared. Transportation appears to be a wobbler. They hold that transportation cost are not deductible as a matter of law (implying I’m guessing they can be deductible with respect to the contract’s language).
Anyway the language in my lease indicates that transportation is not deductible while common sense indicates (getting back to the decline/incline issue here) that if 1/3 of the original amount is being produced why are transportation costs tripled rather than having decreased?