The lease contains this language “To deliver to the credit of Lessor in the pipeline to which it may connect its well 3/16ths part of all oil produced and saved from the leased land.”
Is this a common type of royality distribution? There is no mention of pricing, net or gross proceeds, or deductions. This is a situation where the lease will be either assigned, held or participation.
Should this lease be avoided or what language should be added or subtracted? Would l be getting the full 3/16ths or am l losing royality money?
The bigger question is why 3/16ths instead of 1/5 or 1/4 which will pay out more royalty. And it should have the words “gross proceeds” in it.
If you keep reading down the lease, you will see the gas section and that is where you have to be really careful about the post production costs.
If this is the one page letter telling you about potential pooling and giving you three options (lease, assign or participate), then you are not looking at a lease at all, just an offer letter.
I do not ever sign those letters. If I am interested in leasing, then I call back and ask for what they are offering for 1/5 and 1/4 and ask for a copy of the lease, then negotiate from there. You will need a good Exhibit A which will protect you.