What do the following lease terms mean and are they lessor friendly?
1) Indemnification
2) no warranty on title
3) no storage
4) no coal bed methane
5) Pugh clause
6) post production costs vs. at well cost/market enhancement/market gross proceeds
Whew. Big question.
Keep in mind that the word or phrase has a general meaning, but the way it's defined in the lease could be much different. Read your particular lease very carefully.
Indemnification: in general, it means the company is going to take care of any lawsuits that might be brought against you for negligence, etc.
No Warranty of Title: in general, it means that you aren't making any promises that you have good title to the property.
No Storage: in general, it means the company can't use the property to store gas.
No Coal Bed Methane: in general, it means the lease is not conveying the right to develop the coal bed methane.
Pugh Clause: in general, it means that after the primary term, any property that isn't producing minerals drops out of the lease.
Post-production Costs, etc.: in general, this paragraph will define which post-production costs, if any, the company can deduct from you royalty.
Any one of the paragraphs that define these terms in your lease could be worded in your favor. Or they could be worded in the company's favor. It really depends on how the lease is written. Normally, most of these clauses will be worded in your favor, except for Post-production Costs.
Thanks, Kyle. Very helpful.