We have interest in Trinity Op’s Glynell wells in 30/31-8N-12E. Great wells, but can’t get an answer out of Trinity as to why they’re taking 40% in deductions. Our lease includes Mittelstaedt v. Sante Fe Minerals language, so we expect some to be taken, but how can they justify 40%? They won’t answer our requests for explanation.
Anyone else experiencing this?
Depending upon your Mittlestaedt language, you may need a lawyer to send a request for the Mittlestaedt required justification.
I’ve complained for years about the excessive expenses that have been taken out of royalty payments. Trinity is the worst offender but there are several operating in the Arkoma Basin. For years, Trinity extracted 30% (note - includes OK state taxes and Prod taxes) and recently (within the last 4 months or so), this has morphed into 50% (includes OK state and Prod taxes). So total deductions have gone from 30% to 50% (left in the OK state tax and prod tax since comparison only). I have never been given a reason for these expenses and have not been given a reason for the recent increase in expense deductions but I suspect that they are extracting more expenses to cover fixed costs that they are liable for regardless of the price of natural gas. They just never deducted this much in prior price downturns.
Gas post production expenses can be very high. In the Appalachian area, some companies were charging 100-200% and sending negative royalties notices. That is why it is so important to word your lease correctly to prohibit any post production charges. I have heard that at least one company in OK has been hiding the PPC charges in a second “tax” line on their statements.
The Mittelstaedt case states: "In sum, a royalty interest may bear post-production costs of transporting, blending, compression, and dehydration, when the costs are reasonable, when actual royalty revenues increase in proportion to the costs assessed against the royalty interest, when the costs are associated with transforming an already marketable product into an enhanced product, and when the lessee meets its burden of showing these facts.
If the lease was written properly with the Mittelstaedt clause wording (which an attorney should review), then you might be able to get a refund if the lessee cannot meet its burden of showing the three facts listed above. You may need a good attorney to represent you.
If you have a post production charges clause in your lease that allows them, then you do not have much recourse.
The theory is good but the reality is different. Regardless of what is in the lease, some companies do what they want anyway and basically dare you to take them to court knowing that the legal fees are an insurmountable obstacle for almost all individual royalty owners and the only recourse is a class action lawsuit like the one brought (and won a settlement) by royalty owners against Bravo Arkoma for deducting excessive expenses from royalty payments. See URL below.
View Bravo Arkoma class action settlement…
Unfortunately, you are right in many cases.
In some cases, the accounting software is to blame as it may have default selections set to charge everyone post production charges unless they protest. Accounting may be in one location and legal in another and they don’t always talk to each other. Once you file a protest citing your lease terms and hopefully get the situation fixed, you have to keep close watch. The accounting software updates may reset back to defaults, so vigilance is required.
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