My family recently received a lease offer for 15%-"Clear of deductions" for some mineral rights in Manitoba. I was told this means we will receive a flat 15% of the oil @ gas produced. I am wondering what percentage is typically deducted. Is this a better or worse deal than say 19 or 20% royalt with the usual deductions? Thanks, Tom
Tom, the amount of deductions varies widely. To a degree this depends upon what is sold (oil or gas), where the production is (near or far from pipelines), and who is the operator. As a result I doubt any of us can provide you a specific number. Though perhaps someone can offer an industry average?
In general I'd always prefer a free & clear royalty ("clear of deductions") since you know what you'll receive. Though if you can get 20%, are near existing pipelines, and have an honest operator you might come out ahead of the flat 15%. Good Luck.
Tom,
I've seen deductions of 5% to 25% for "operator controlled" costs to the lessor over and above severance taxes. Theoretically, Eastern MT is correct about the pipeline location factor but it doesn't seem to hold true in real life since the deducts can be so subjective and not audit able by the lessor. For me and my clients, there is always a minimum threshold to be met. Don't let the arithmetic about royalties override your good common sense.
Gary L Hutchinson
Minerals Mnagement