When did the Royalty Interest begin to start paying its share of costs?

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This is an excellent question that was posed in the general forum.


Royalty is one of the five elements of the mineral estate.


A "royalty" is usually defined as "The landowner's share of production free of expenses of production." That is the affirmative side of what a "royalty" is. (Patrick H. Martin & Bruce M. Kramer, Williams & Meyers Oil and Gas Law 920 (2012)).


What happened to the royalty being free of expenses of production? You are allowed to re-define terms according to contract and that is just what happened from day one in the oil and gas lease.


The Oil, Gas and Mineral Lease is what happened to the royalty being free of expenses of production.


This is my philosophical argument to have a royalty free of costs as defined in my lease form. I argue that they are taking the usual definition of royalty and changing it away from the definition so much that the term royalty really does not apply at that point.

It should be more closely aligned with a gross profits interest the way the definition of royalty is constructed in the lease form. That is not the transaction that I want.

This is also my argument when we own a NPRI. By definition, the interest is cost free - no matter what the lease form provides. I argue that the lease could set the quantum of the royalty interest, but it does not overrule the definition of law as to what a royalty interest is.

Potentially,as a NPRI owner, you could ratify a lease in a very broad manner rather than ratifying the lease for pooling purposes only. If you ratify the lease in a broad manner then you could have your NPRI charged with post production costs.

Buddy Cotten

www.cottenoilproperties.com

Oil and Gas E-Zine - The Morning Report

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So you are saying that many? All leases not allow us mineral rights owners to be charged with production costs? Is this universal or very common? Increasing or occasional? If so how much leeway do we have to have that excluded from our contracts? Thanks.

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I have same question: Is it common to collect royalty interest from production metered directly from the well? or do you actually have the production correctly until some further treatment expense, and other operations such as water treatment, disposal costs ? I'm hung up on Post Production costs: what are they? if your royalty is 3/16, I think post production costs should come from the operator's part. ?? appreciate comments.

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Have you heard about class action against Chesapeake? 10 yr period royalty owners wrongly charged fees and deductions. CD 10-38. Fitzgerald Farms is the plaintiff. A Texas law firm is attempting to get owners to opt out of the class and represent them. I know these actions usually pay minimal but I was wondering if you have any input I’m clueless on this one and with the other law firm it made me question.