My draft lease now contains an Addendum containing a provision for an 18% royalty with capped post-production costs. The post production costs are defined in detail but are not to exceed $0.80 MMBTU (which is still a little bit high anyway). On top of that, they want to adjust the MMBTU annually, based on the Consumer Price Index. With the amount of complexity involved, I now know that I will never achieve anywhere near 18% after a multitude of deductions. I instead want to revise it to require a gross proceeds clause, the royalty then being based on gross proceeds, with nothing withheld except taxes. If successful, what sort of royalty should I be requesting for this Wetzel County drill site, i.e., the same, or something lower? (The original draft lease that they started with was 1/8 or 12.5%.) Regardless, I will still be hiring an oil & gas attorney to review more finalized paperwork. Or, is the royalty is this sort of case something that only an attorney should negotiate?
Alan,
In my humble opinion, the terms of this agreement are simply TERRIBLE!!! Under NO Circumstances would I sign anything similar to what has been proposed. Spend the money to hire an attorney, it is an investment you will not regret!!!
Gross is your best option. Adds ~2% compared to net. Push for 18% gross or 20% net. Your operator is going to take that $.8 mmbtu everytime with that clause.
I agree, Gross is best. However, the EQT has already transformed the payment into a Net, by taking deductions. Additionally, I would require the Gross payment be based on "Third Party, Arms Length Sale", thus preventing EQT from selling your production to EQT Transmission Company at a price well below Fair Market Value. If you do not think this is an issue, research suits against EQT in Wetzel, Tyler, Doddridge and Ritchie Counties, et al and you will find that is their common practice.
I have spent well over 50,000.00 in Successfully defending three lawsuits by EQT, I am very familiar with their practices, games, scams,........................