Regarding your advice to get good post-production language inserted in a lease, is the following “no-deduct” language (which is ai-generated) feasible, or is it too strong for any operator to accept?
"Notwithstanding anything herein to the contrary, all royalties payable under this Lease shall be calculated and paid based upon the highest gross proceeds received by Lessee or any affiliate of Lessee from any arm’s-length sale of production attributable to the leased premises, without deduction, directly or indirectly, for any costs or expenses of drilling, testing, completing, producing, gathering, separating, treating, dehydrating, compressing, processing, transporting, storing, marketing, fuel usage, line loss, shrinkage, blending, manufacturing, fractionating, or otherwise making the oil, gas, casinghead gas, natural gas liquids, or other hydrocarbons ready for sale or use.
No royalty shall be reduced by reason of any sale, transfer, assignment, exchange, or other disposition of production or related products between Lessee and any affiliated entity, commonly controlled entity, subsidiary, parent company, or other non-arm’s-length purchaser or intermediary. Any such non-arm’s-length transaction shall be disregarded for royalty valuation purposes.
Royalty shall instead be based upon the highest price paid or proceeds received in any subsequent arm’s-length sale to an unrelated third party purchaser in the same or nearest available market.
Lessee shall bear all post-production costs and expenses and shall not directly or indirectly charge, allocate, net against, recoup, retain in kind, or otherwise recover any such costs from Lessor’s royalty interest by deduction, net-back calculation, surcharge, percentage reduction, retained volume, fuel retainage, line loss adjustment, shrinkage allowance, or otherwise.
All royalty payments shall be accompanied by sufficient detail to permit verification of volumes sold, pricing received, purchasers, transportation arrangements, processing arrangements, and all affiliates participating in any transaction involving production from the leased premises. Lessor shall have the right to audit Lessee’s books and records relating to royalty calculations upon reasonable notice."
As always, thanks for your sage advice.