I need a friendly way of writing in the lease to insure no after production costs will be deducted from my royalties
What do you mean by friendly? Is it a lease in Texas or ?
I think it would be best to seek the advice of attorney if you can.
Being in Texas, if I absolutely had to DIY an oil lease, I would
1.) Read every article on the subject in John McFarland’s Oil and Gas Lawyer Blog
2.) Read The Texas Tech Law Review paper “ENHANCING RECOVERY AND ROYALTIES: THE FLAWED DECISION IN FRENCH V. OCCIDENTAL PERMIAN LTD. AND HOW LESSORS CAN OVERCOME LEASE LANGUAGE BARRIERS TO PROHIBIT POST-PRODUCTION DEDUCTIONS” by Niravkumar Patel [link to paper can be found via search at top of page]
3.) Try to find a recently recorded lease whose grantor was an oil company or mineral holding group who did not agree to a Memorandum of Lease / “Memo”. My thinking is that a company will have the wherewithal to negotiate a lease which actually prohibits post-production deductions. You might find such a lease by searching CourtHouseDirect and TexasFile. CourtHouseDirect has an excellent, free lease alert notification system.
4.) After finding what I hope might be suitable language, I would handprint–not type–something like the following at the end of the lease, just before the signature page, or add to the Exhibit page, if there is one: "Notwithstanding anything contained herein to the contrary, the following supersedes and controls all aspects of and any conflicts within this lease as to post-production deductions: “______________”
5.) The non-attorney is very likely going to find him/herself in a lion’s den. I am not an attorney nor am I giving you any legal advice. The above is like a Hail Mary pass–or perhaps even more aspirational.
6.) Hire an oil and gas attorney if possible.
7.) Forgot to say search this forum.
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What do you mean by “friendly”?
This is in Wattenberg, Colorado. By “friendly” I mean to write a simple contractual clause that relieves the lessor of any and all after productions costs without engaging in knit-picking. I’m not signing the Colorado lease I have because it mentions accepting shared responsibility (like an investor which I am not) for everything except pumping. It now states I must pay the royalty percentage I get in my contract toward a dozen or two points such as : transporting, refining, fixing equipment, and so on. The clause seems so unfriendly to a small private owner and was not in my previous lease with the same company. BTW, the lessee’s offer to lease my mineral rights now is HALF the previous bonus amt., and 4 percentage points lower, and two years longer than our previous lease with them! The whole time we have been negotiating has been a very negative experience. I just want to clean up the contract with a “no post-production costs clause” that is simple and to the point.
keep in mind that the “at the well price” for production may not be much. Is it a salable product? Do the post production costs add to the value of the product?
Hi Pam, First of all let me preface this by saying this shouldn’t be construed as legal advice. For advice on specific oil and gas lease language, you should consult with an attorney. That said, one way you may be able to save money is to have an attorney to review and redline any proposed changes that you make vs. having them draft it from scratch. I’ve found that you can glean a lot of information by searching the Weld County clerk & recorder’s website for other leases that have been signed in your area. For example, here are two different ways that others have addressed this issue from the very basic (crossing out the language that allows the operator to deduct post-production costs) to the more advanced (drafting an addendum with replacement language).
OGL Overland Energy Partners to Bonanza Creek (911.5 KB)
OGL Hydrocarbon Minerals to Noble (449.2 KB)
In any case, take a look at what the company has agreed to with other mineral owners in your Township (via recorded Oil & Gas Leases) to understand what you might be able to negotiate and then you can bring in your attorney to make sure the language you are proposing will actually achieve what you want.
Good luck! Thanks, Matt Sands
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See the OGLs in Matt_Sands’ post. In the Overland Energy Partner to Bonanza Creek lease, note Addendum item #1’s supercede and control language. An oil company with 800 acres is likely in a better position to make demands than many mineral owners.
Good information. Was offered lease from Quanico in Union County Arkansas. They were using old production form, which we refused to sign. Attorney said we own the minerals and land, so write the lease ourself and negotiate.
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