Looking for guidance here, concerning “Purchaser Paid Deductions”.
Given $7K in new deductions is on the line, would hiring an attorney be worth pursuing this? I don’t want to spend good $ chasing maybe $.
And do OG attorneys work for contingency/% recovered vs. hourly fees? If so, any recommendations for San Antonio?
Back story…
Last year Burk Royalty took over production of our Steward Energy wells in Yoakum County. Listed on our first Burk statement was a new charge against GAS labeled “Purchaser Paid Deductions”, amounting to 28% of the gross revenue! This deduction charge is consistently $400 - $450 per month per statement for the past 16 months, regardless of GAS production or price! This new deduction creates a loss against the sale of GAS and is charged back to us against the total revenue on each well.
I’ve had multiple email conversations with Burk asking them to explain this new deduction. I’ve pointed out that our lease is a “No Cost” (No Expenses) lease, their reply is that it still is and they are operating accordingly to the terms our lease agreement.
I ran our lease terms AND my discussions with Burk through Claude and asked if there was any conflict, see discussion in attached pdf…
Also, given the one attachment per post restriction I’ll post a Burk statement to illustrate the “purchaser paid deductions” charge in a following post.
Do not rely on AI for legal advice. I glanced through your post and only had to see the statement that Heritage is the controlling case. There have been multiple cases since Heritage which have refined that decision in light of specific lease language and frequently ruled adversely to mineral lessors. The lease must be read as a whole, and not simply one clause. See link to article by Flowers Davis law firm. I am not sure it has been updated since 2020 and there are more recent decisions, particularly regarding the sales point and how that is addressed in your royalty clause. Cost-Free Royalties – Where Valuation Begins and Post-Production Cost Deductions End – Flowers Davis PLLC
Thank you, TD, it’s an outstanding read! But sadly, doesn’t raise my hope. I’ll give my lease another thorough reading in light of your suggestion how terms support each other.
PS: I do not rely on Ai for legal advice, but I do use it for information, to help me understand legalese, and guide me towards relevant subject matter.
Texas severance taxes are usually legitimate unless they are not allowed in the lease. Probably very rare that someone puts it in a lease.
Some companies hide their deductions in a tax line, so you never know on that one.
You need to ask Burk exactly what is included in the Purchaser Paid Deducts. Ask them if it is transportation, marketing, compression, dehydration, etc.
Look at the royalty clause to see how the gas royalty is to be calculated. The Burk responses indicates that Burk sells the gas to X at the off-lease point where it enters the transmission line. X then transports the gas to the processing plant. The sales contract with X may set the calculation of gross sales revenues as the value at the processing plant for gas and for NGL, reduced by all the expenses incurred back to the point of sale. So Burk is reporting the gross sales and then deducting those charges back to the point of sale, i.e. entry to transmission line. It has become a common practice among the oil companies to set the sales point at the wellhead or at the transmission line and not at the tailgate of the plant. This allows the deduction of the costs from the sales point to the plant tailgate against the royalties. It gets around the cost-free provisions. Your lease terms would have to address this directly by specifying the value at the plant tailgate or other method of calculation. Some companies net the costs out of the revenues and only report the net value after costs on the check detail, so the costs are hidden. The only plus for you is that you can calculate depletion on the total gross sales on the Burk check. You are not alone in seeing this.
