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.
Thank you, agreed. And that’s a very good question to ask given their initial response simply states: “The $36k in deductions are the total fees the purchaser charges for transporting, treating, etc. the gas after the sales point.”
Your suggestion is appreciated and will be part of my future inquisition. TY!
Good response TD, thank you. I’m afraid you’re going to be proven correct.
To answer your question, royalty for all hydrocarbons is 25%. The royalty clause for gas states…
Gas: One-forth (1/4) of the market value, computed at the point of sale, all gas produced from said lands. The value of such gas shall never be less than the total consideration realized by Lessee from the sale or other disposition of such gas and any products obtained through processing the gas. If Lessee sells the gas to one of its affiliates, royalty is due on the greater of the market value, computed at the point of sale, or the gross proceeds received by such affiliate of Lessee.
(HOWEVER ~ see ADDENDUM to the NO EXPENSES clause 3.e. in the pdf I attached in my original post, if relevant to deciphering the last sentence, and justifying/or not their deduction)
I’ve got a feeling that they’ve found around this and I’m getting hosed, bad. This wasn’t happening with Steward, based on comparing total production, price sold & deductions to Burk’s numbers. But Steward only charged severance & environmental taxes which equaled 4.5% avg. In short, Stewards & Burk’s total/gross production numbers in relation to price line up per well, but Burk’s Purchaser Paid Deductions (in addition to taxes, which matches Steward’s) take a HUGE chunk out and lowers my net by an avg of 28%.
I don’t expect to resolve this here on this forum, but I’m wanting to find out from more experienced owners if some of you believe I have a claim to move forward in trying to recover $7k in a counter-lease terms deduction, or not.
I’m happy to consult an OG attorney, if believed to be warranted. That’s what I’m trying to find out here.
That 28% is brutal. And it being a flat amount each month regardless of production? That’s suspicious.
“Purchaser paid deductions” usually means marketing or gathering fees. But if your lease says “no cost”, they shouldn’t be passing that to you.
Have you asked them for the actual purchaser invoice? If they can’t show it, that tells you something.
Attorney? For $7K, maybe start with a strongly worded demand letter. Mineral rights attorneys usually bill hourly, not contingency. But a letter might cost you $500-$1000 and could get their attention.
Also check if other royalty owners on the same wells are getting charged the same thing. If not, that’s another red flag.
Don’t let them drag this out. The longer it sits, the harder it gets to recover.
“Purchaser paid deductions” usually means marketing or gathering fees. But if your lease says “no cost”, they shouldn’t be passing that to you.
See attached pdf as to why they are.
Have you asked them for the actual purchaser invoice? If they can’t show it, that tells you something.
No, but a great idea, thank you!
Attorney? For $7K, maybe start with a strongly worded demand letter. Mineral rights attorneys usually bill hourly, not contingency. But a letter might cost you $500-$1000 and could get their attention.
Strongly considering!
Also check if other royalty owners on the same wells are getting charged the same thing. If not, that’s another red flag.
I have, and they are as well.
Don’t let them drag this out. The longer it sits, the harder it gets to recover.
Agreed, thus this post. Thank you for your input sir!
I love Claude and have used it for business and personal uses for a long time. However, it does have a tendency to favor the author unless prompted otherwise. For legal purposes, I utilize perplexity AI as it’s a legal AI tool. Just always make sure prompts include language associated with accurate narratives not seeking to please the author or make assumptions for authors benefit.
I’m truly sorry you’re having to fight the operator for something that’s rightfully yours. Continue pursuing the accurate royalty income you are deserved! Best of luck!!
Oil severance tax rate is 4.5% and gas severance tax rate is 7.5%. They should be viewed separately. Only exception is where the well has been classified as a high cost gas well and has a reduced severance tax rate for some years. For the gas sales, you need to combine the gas and NGL gross sales reported by Burk and divide by the total gas volume to get the gas price. Steward check combines the gas and NGL sales into a single number. Then look at the gross sales reported to the TX CONG which is a combo of the gas and NGL. You may find that Steward was netting out costs from the gas sales reported on your check.
The purchase price is determined by multiple factors under the terms of the long-term contract. Transportation charges are per mcf and processing to separate NGL from gas is more often a percentage of the value. In my experience, most oil companies will not send that contract out to mineral owners unless the lease requires it or you or your attorney are in negotiations with the oil company and have signed a nondisclosure agreement. Your attorney is more likely to get attention, but will be having discussions with the oil company and charge for that time.
I have run into this same problem with Hannathon on a lease in Glasscock county. I have just received a “paid up oil and gas lease” from Texland Petroleum on a 160 acre tract in Yoakum County of which we only have 2 Net Mineral Acres. Can we talk about what it would cost us for you to look over the lease?
