STATEMENT FROM A Company TOO BROADLY WRITTEN! HELP PLEASE!

Landman Discussion
1

I have issues with this statement - I think it is too broadly written:

(d) The royalties payable under the Lease will be free of all production and post-production costs. However, Lessor’s proportionate share of any such costs that result in enhancing the value of the oil, gas or other products to receive a better price may be deducted from Lessor’s share of production so long as the deductions are based on Lessee’s actual costs and the total amount of the costs do not exceed the amount of the enhanced value.

These are the reasons I think it is too broadly written:


So, if the product was enhanced, how do we know what the increased value of the product was and how do you know we received royalty for that? I certainly could not tell if A Company paid us for that enhanced value on our royalty statement - and if it was written into any of our leases - it still doesn't prove that we received royalty on the higher value. I guess that is the point I am trying to make. I suppose we could blow my questions off, but these charges and higher value in product from enhancements add up.

Thanks Buddy! I'd send you a copy of the lease to read for me and be proud to pay you for your services, but at this time, I am not privileged to do so.

2

Dear Susan,

This is what is becoming a very common clause, one that I would like to get deleted if possible.

In the alternative, how do you know? Only by audit rights negotiated in the lease itself - which is important if you have a significant mineral position. Audit rights are important even if you are not paying for deducts. If you get gypped out of a nickel a mcf on gas price and the well produces 3,000 mcf per day, it adds up quickly. And 5 cents is not much.

In my career, I have never seen an audit that the exceptions did not pay for the audit.

3

I don’t understand what you mean by “In my career, I have never seen an audit that the exceptions did not pay for the audit.” What do you mean by “exceptions did not pay for the audit”? Also, how should such a phrase in a lease be worded for including audit rights? I would be willing to pay for your services if that question is beyond general.

4

Dear Susan,

By "in my career" I mean that I have never witnessed ...

But it does not mean that it has never happened..

"exceptions to audit" is an accounting term that means there are items which look suspicious and that the person preparing the data must explain to the satisfaction of the auditors or they will not remove it from the exception list. Remember the term, "I take exception to that!"

As a service to only the readers of www.mineralrightsforum.com, I will add an audit right clause to my website www.oilandgasleaseforms.com on Thursday, September 8, 2011 at a greatly reduced price (75% off). Afterwards, the price goes up to its normal level. Add the code MRF upon checkout to qualify for the discount.

5

Thank you so very much! I am certainly appreciative and it is only reasonable expectation to pay for your services, which I will gladly do when it is time for me to personally sign a lease - I’m not sure when that will be, but I think having you review a lease our attorney has written would be a prudent level of professional peer review so to speak.