Lease says:
To pay Lessor for gas of whatsoever nature or kind (with all of its constituents) produced and sold or used off the lease premises, or used in the manufacture or products therefrom the One-Fifth (1/5) 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 the One-Fifth of the actual amount received by the Lessee, said payments to be made monthly. ...
My question, is this alright? My lawyer seemed to think it was alright, but the lawyers are very, very busy. Any comments?
Margaret, Who is your attorney?
He/she is in Kingfisher , OK. Is there a reason why you ask?
I often recommend attorneys in the Kingfisher area and I was hoping yours was not one I recommend.
Is there something wrong with the lease language? It seems common to leases,
The rest of the royalty clause language is the important part. If you have anything that says "less a proportionate part of...." then watch out because it can cost you quite a bit. In the "old" days, saying "gross" was sufficient, but some operators have snuck in some sneaky language at the end of the clause. Post the whole clause for oil and gas and I can tell you a better answer.
M barnes is right as usual. Sneaking language. Ask yourself this question, "Does the lessee have the right to sell gas into its own pipeline at half the going market price paid in an arms length transaction?" and if so, how do you get paid? sneaky Language indeed.
How do you get paid for gas used on the premises?
Here is a paragraph from Exhibit A. I guess it is alright, but am wondering.
"It is agreed between Lessor and Lessee that, notwithstanding any language herein to the contrary, 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, transporting, and marketing the oil, gas and other products produced hereunder to transform the product into marketable form, however, Lessor's share of any such costs which results in enhancing the value of 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. However, in no event shall Lessor receive a price that is less than, or more than, the price received by Lessee."
"....however, Lessor's share of any such costs which results in enhancing the value of 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. However, in no event shall Lessor receive a price that is less than, or more than, the price received by Lessee."
In the first sentence, the insertion of the end clause starting with "however" essentially negates the prior language about no expenses. Lessee can claim any and all costs helped the "enhance the value". This would include marketing overhead on the grounds that our employees are good negotiators, whether or not the contract was any better than that of other companies. The second However sentence says that mineral owner gets price received by lessee, which, as Gary Hutchinson points out, can be significantly below market value. The lessee could sell gas from your well at a lower price in order to get a higher price from another well. Essentially, you will get the proceeds price, less costs.
Gary is right. There is probably a sneaky little sentence in the lease in another spot that says they can use your oil or gas free of charge on the premises. No No NO
I write this provision into my leases: "Lessee has a duty to exercise due diligence and use all reasonable efforts in marketing any and all production from oil and gas wells on the leased premises to obtain the best prices reasonably available for the oil and gas."
And, I omit this and similar provision from my leases: "Lessee shall have the right to use, free of cost, gas, oil and water produced on said land for its operations thereon, except water from wells of lessor.
Then, I include 'No Deductions' to my Addendum:
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, transporting, (including trucking charges) and marketing the oil, gas and other products produced hereunder to transform the production into marketable form.