Gross proceeds with gas enhancement

Oklahoma Mineral Rights Grady County, OK
1

If anyone has some time, could you take a look at this Gross proceeds clause and offer any recommendations as how to proceed?

GROSS PROCEEDS WITH GAS ENHANCEMENT : It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all oil, gas or other proceeds accruing to the Lessor under this lease or by state law shall be without deduction for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas and other products produced hereunder to transform the product into marketable form; however, Lessor’s share of any such costs which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from Lessor’s share of production so long as they are based on Lessee’s actual cost of such enhancements. However, in no event shall Lessor receive a price that is less than or more than the price received by Lessee.

1 Like
2

That last “however” clause just put back in the post production costs.

I prefer to not have it in there. Almost impossible to prove.
My preferred clause reads:

NO DEDUCTIONS: Notwithstanding any language contained herein to the contrary, all oil, gas or other proceeds accruing to Lessor under this lease or by state law shall be without deduction, for the costs of producing, gathering, storing, separating, blending, treating, dehydrating, compressing, manufacturing, processing, transporting, and marketing the oil, gas and/or other products produced under or otherwise covered by this lease.

If they won’t budge, then a better alternative might be:

LIMITED DEDUCTIONS: Notwithstanding any language contained herein to the contrary, all oil, gas or other proceeds accruing to the Lessor under this lease or by state law shall be without deduction, for the costs of producing, gathering, storing, separating, blending, treating, dehydrating, compressing, manufacturing, processing, transporting, and marketing the oil, gas and/or other products produced under or otherwise covered by this lease to transform such oil, gas or other product into marketable form or to make such oil, gas or other product ready for other use; however, Lessor’s share of any such costs which result in enhancing the value of such marketable oil, gas or other products to receive a better price may be deducted from Lessor’s share of production so long as they are based on Lessee’s actual cost of such enhancements and are otherwise in compliance with the guidelines established in Mittalstaedt v. Santa Fe Minerals, Inc., 1998 OK 7, 954 P2d 1203. If deductions are taken for any post-production costs as described above, Lessee, upon Lessor’s written request, shall provide the Lessor a detailed analysis of each such cost and how and in what amount each such cost enhanced the value of such oil, gas or other products.

You have some authority under the Mittalstaedt case to get an accounting of the costs and how it enhanced.

Caveat: I am not an attorney, so use at your own risk.

3

I agree with Martha - this is a Market Enhancement clause and not true ‘Gross’ language. There has been precedent set in TX that anything that is done to natural gas enhances its marketability. So you end up getting charged for gathering, transportation, processing, etc.

4

Yep. I wish I had known about this group before I signed several leases a bunch of years ago.

5

Oklahoma is an “implied covenant to market” state. That means they have to get your product to market without charging you. UNLESS, you let them do it by allowing it in the lease. If you use that “enhanced” clause, you just opened the door to getting charged all sorts of things that you will have no control over and no ability to get an accounting for. A very clear NO deductions clause is much easier to defend than a fuzzy “enhanced” clause. The Mittalstaedt gives some protection, but even it has loopholes that will be exploited (in my opinion).

6

NO DEDUCTIONS…!!! Use M Barnes NO deductions clause… Put it in Attachment 1 along with no warranty , no extentions. Etc. Clauses

7

Do you have a preferred Depth Clause?

8

I’ve seen this one floating around, but not sure.

Depth Severance: It is agreed and understood that this lease shall expire at the end of the primary term as to all depths from (100) feet below the then producing perforations from any well drilled during the term of the lease or any extension thereto or in any land that was spaced, unitized or pooled during the primary term.

9

Here is the one I try to use. I know continental will not accept it as written. DEPTH CLAUSE: This lease shall automatically terminate ninety (90) days after the expiration of the primary term of this Lease as to the portion or portions of the land covered hereby which are not included in a producing governmental drilling or spacing unit. In addition to the foregoing provisions, this Lease shall automatically terminate upon the expiration of its primary term as to all depths lying 100 feet above the top of the stratigraphic equivalent of the shallowest producing formation and depths lying 100 feet below the stratigraphic equivalent of the base of the deepest producing formation.