I had a no deduction clause on my Exhibit A that prohibited deductions for transportation, compression and processing. EOG has deducted for all of those expenses. How does one go about straightening this out or are you stuck with it? Do you bother to call the operator or must you contact an attorney or is the no deduct clause invalid? Any suggestions welcomed.
I would begin with the operator. If unresponsive contact an attorney. Some listed in the 
It is a Production Revenue Standards Act issue and as a matter of fact (not a legal opinion), here is what happens. The Operator collects royalties from the working interest owners, and dumps all the money into a pot. What you get paid is a percentage of that pot. If you are the only lessor with a “no deductions” clause, then the majority of what you get paid was calculated under the terms of the other leases which allow those deductions.
Thanks to Richard and Frank for your input. I will start tomorrow on the phone.
John_W, this has been a problem with several operators including Continental Resources who settled a class action suit last year for close to $100mil. About half of the settlement was strictly for improper deductions for gathering, transportation etc. The terms of the settlement expressly address deduction clauses. About $50mil will be paid to royalty owners who suffered from Continentals improper deductions and the deduction clauses play a part in determining who gets refunds plus interest. Re. Strack v Continental.
Yes, we were part of that but when they eventually sent a check it was a drop in the bucket. Personally, I think you need to talk with the company and see exactly what is going on before spending any money and, if the company says that the lease as you did it (with the exclusions) isn’t going to be honored then you need to talk with an attorney who is VERY experienced in mineral rights matters.
John_Moran, I am part of the class too but that was the sub-class 1 settlement which did not cover deductions. Payments for the sub-class 2 settlement will start during the 4th quarter of this year and deductions will cease for those who qualify starting in September as per Plantiff Attorneys.
Start with the operator by sending a certified return receipt letter. You want a paper trail. Give them your owner number and which well you are referencing.
The accounting department does not always talk to the leasing department. Many accounting software packages automatically deduct. You need to specifically remind them of your lease terms which prohibit. Keep copies of all your correspondence.
1 Like
Michael Hutchinson is there a way to estimate how much and if an individual will receive from the sub class 2 settlement based on what they received from the 1st. Also how would a person know if they are lucky enough to have the deductions stop in September. That part I did not know about.
Below is a link to the settlement, it’s not real easy to understand, I’ve read it several times and still am left in doubt on many points. It’s serious legalese and in places contradicts itself. Best case scenario is you will get back all of your deductions by the end of the year and deductions will stop within the next few months. My gut feeling is it’s going to come down somewhere in between. Sorry I can’t be more specific but even after several conversations with the attorneys I still don’t feel as if anything is written in stone.