As I mentioned before I had a vertical well drilled under the same lease as the recent horizonal well (Black Mesa).There was never a notation on the pay stub for processing fees. Do they have processing fees in a vertical well? Thanks
Processing fees are independent of the type of well (vertical or horizontal). What I have witnessed is that older wells do not carry as many fees as newer wells. This is curious to me because I believe the lease determines the charges to the royalty owner.
My lease states, “gross proceeds at mouth of well”. Doesn’t that eliminate processing fees? Thank you.
Make sure that you do not have any sentence in the royalty clause that allows processing fees such as marketing, compression, dehydration, etc. If you do not, then send a certified letter return receipt with a copy of your lease and the clause highlighted in yellow and demand that they refund any processing fees ( except for approved taxes) and cease from charging any more. Some companies have accounting software that automatically deducts the fees unless they get caught. You need to notify them in writing that your lease does not allow such fees.
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Substantial review and legal analysis is needed to determine whether a company has inappropriately withheld funds for processing. Unfortunately this forum can only provide some guidance. However, it sounds as this this justifies an attorney review.
Here is the wording in my lease:
In consideration… 1st To deliver to the credit of the lessor free of cost, in the pipe line to which it may connect its wells, the 3/16 part of all oil (including but not limited to condensate and distillate) produced and saved from the leased premises,
2nd To pay lessor for gas of whatever nature of kind (with all its constituents) produced and sold or used off the leased premises, or used in the manufacture of products therefrom, but in no event more than 3/16 of the actual amount received by the lessee, said payment to be made monthly.
3rd To pay lessor for gas produced from any oil well and used off premises, or for the manufacture of casing-head gasoline or dry commercial gas, 3/16 of the gross proceeds, at the mouth of the well, received by the lessee for the gas during the time such gas shall be used, said payments to be made monthly.
This sounds to me like there should be no deductions. I am not asking for legal advice but would like some opinions, if you would.
Thank you.
Looks like to me ( and I have not expertise at this and I am not accredited in any way ) that you may be charged the expense of Transportation, Processing of Oil ( getting it to the pipeline), and for gas and other products charges such as compression and processing can be deducted. This is why it’s SO important to have a NO DEDUCTION clause in your lease. If you had an attorney review this I would as him about the deductions you are seeing. Again I am not an expert – hopefully I am wrong about this interpretation of your lease.
If you have a no-deductions clause* in the lease BUT have a enhancement exception clause**, what type of costs then qualify as deductible?
- “… 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, and marketing the oil, gas, or 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 costs of such enhancements.”
I asked Camino to review my lease and they tell me no deductions other than taxes were taken from my royal payment. The payout sheet is impossible to read and the way deducts are listed it is not clear what has happened. They tell me they are getting a new payment form to send out for royalty owners. I still have other questions that I will address with them.
Many times the Deductions are listed on the Royalty Advise Statement, but are not deducted from the Gross. Take the GrossValue x Your%Interest and see if this matches your net amounts on each line. Or see if the deductions are used in the calculations to arrive at your amount on the statement. If what they are saying is true they MAY be be listing the deductions but not using them in calculating your share. They can turn this option on or off in their software I believe.
Again I am not any type of legal source or authority on these subjects.
I have (what I think is) an interesting question regarding deductions from royalty payments by Canyon Creek, for the Kane 1-12H well, in Coal County, OK. I get that I’m posting about Coal County in the Grady County forum, but the key thing is that it’s about the issue currently being discussed in this thread, and the fact that it involves Coal County seems pretty much irrelevant to me.
I have a very comprehensive no deductions clause in our leases on this property, and I was surprised to find them taking somewhat significant (12%) “Other deductions” out, in addition to severance tax and withholding (they’re going to remove the withholding for future payments, as we’re an Oklahoma LLC, and required to be the withholding agent for our non-Oklahoma-resident members). I spoke at some length with their Vice President for Land regarding the “Other deductions”. He explained this in a way that clearly makes sense from their point of view, and I believe he’s being truthful and transparent. But it also seems to me to describe a new (to me) method that could be abused to allow operators to ignore “no deductions” clauses. I thought I would ask for opinions here. I get that I’m posting about Coal County in the Grady County forum, but the key thing is that it’s about the issue currently being discussed in this thread, and the fact that it involves Coal County seems pretty much irrelevant to me.
The explanation given was that Canyon Creek (“Operator”) has negotiated a contract with Connect (“Purchaser”) that provides very good prices for the oil and gas. But one of the provisions of the contract is that Purchaser is allowed certain post-production deductions to the calculated gross payment, which are deducted before payment to Operator. I wasn’t given a list, but this includes some transportation and marketability charges. Operator apparently feels that the resulting net that they receive is better than it would have been with other purchasers or other contract terms. On our check stub, the three deductions (severance tax, income-tax withholding, and “other deductions”) show up as if they were all taken out by Operator. But actually, both the severance tax and “other deductions” are deducted by Purchaser.
I suspect that we’re not being abused in this particular instance, but it seems to me that the potential is there. I can imagine purchasers offering this sort of contract as an enticement to operators, as it seemingly allows them to transfer to the purchaser some post-production deductions that the operator could not deduct under the terms of many leases.
I would be interested in opinions or similar experiences concerning this sort of situation.
The way this was done in itself is underhanded to me. Was this arrangement made without your knowledge? I would be suspicious of everything they do and check my check stub carefully. There must be another, more transparent, way of getting a better price.
Rudy,
Look at the post from GD1, prior to your post. Don’t know what the posters qualifications are but he posts that it can be done if there is value added.
It’s there job and behooves them to get the best marketable price. Has nothing to do with “honoring” a No Deduction Clause or not. A signed No Deduction Clause is just that = No Deductions. Would never hold up. What good would it be to them to sell to a lower price market and “honor” a No Deduction Clause. Makes no sense. Just words with no honor is all. Words with zero legality. Sounds more like a car salesman than a credible oil company.
I think Graceful99’s point was that when there is an “enhancement” clause linked to a “no deduction” clause (see my earlier post for exact language), things are no longer so black and white. I have not been able to find out what “value enhancing” costs can legitimately/legally be passed along outside of the no deduction clause.
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Opps – there is the Dreaded HOWEVER phrase!!! Don’t sign that lease. ( I am not an attorney, and do not have any training or keen knowledge in these matters)
If your lease does not specifically state that any post production charges must be based upon the actual cost of such enhancements and are otherwise in compliance with the guidelines established in the Mittelstaedt v Santa Fe Minerals Inc., 1998 OK 7, 954 P2d 1203 for the limited deductions clause , then you may not have much of a leg to stand on. An oil and gas attorney can help with the specific language that is needed as it is important to get it right. (I am not giving legal advice)
Some of the items that may be covered are producing, gathering, storing, separating, transporting, blending, treating, dehydrating, compressing, manufacturing, processing or marketing…
Some of the taxes are normally taken out-severance, etc. A few new ones have crept in and are “optional” so you need to keep an eye on them.
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Thanks Bud and M_B but unfortunately in my case the dreaded 'however" clause is in the past and is part of my current lease. I’m now trying to figure out the best to push back on current deductions (Continental).
I cannot find a “no deductions clause” in my lease. The lease says: “To pay lessor for gas of whatsoever nature or kind (with all of its constituents) produced and sold or used off the leased premises, or used in the manufacture of products therefrom, three-sixteenths (3/16) of the gross proceeds received for the gas sold, used off the premises, or in the manufacture of products therefrom, but in no event more than three-sixteenths (3/16) of the actual amount received by the lessee, said payments to be made monthly.” There are large amounts over 50% of the value being deducted from the gas production marked as marketing fees. My lease seems to indicate I am to be paid 3/16ths of the gross production. From what I have provided, does it appear they have the right to deduct these fees. There was one point that I had a negative payment. I have other payments from other companies and they are the only one that makes these large deductions.
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