Deductions for Third Party (3P) transportation costs

Oklahoma Mineral Rights Caddo County, OK
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I know that deductions from royalties is a real can of worms and whether they are allowed or not depends on the lease language and often on interperetations in the state where the lease was executed. But after we inherited mineral rights in 2021, I started examining closely the check stubs for our wells in production. In one section in Caddo, the operator is deducting a significant amount each month for 3P Transportation for gas sold. In researching the lease that is in force, I found that it was signed back in 1977. The lease states that the oil royalty is paid “free of cost.” The gas language reads as folows:

2nd. To pay lessor for gas of whatsoever nature or kind, with all of its constituents produced and sold or used off the leased premises, or used in the manufacture of products therefrom, 3/16 of the gross proceeds received for the gas sold, used off the premises, or in the manufacture of products therefrom, but in no event more than 3/16 of the actual amount received by the lessee, said payments to be made monthly.

3rd. To pay lessor for gas produced from any oil well and used off the premises or for the manufacture of casing head gasoline or dry commercial gas 3/16 of the gross proceeds at the mouth of the well received by the lessee for the gas during the time such gas shall be used, said payments to be made monthly.

There is no deductions clause of the kind I have inserted for leases I have done recently.

I know that no one on this forum can officially give legal advice, but I am looking for experienced opinions- is this worth pursuing with the operator to eliminate these Transportation charges or are we stuck? Thanks

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Interesting subject matter. Steve, please keep us addressed on how this goes. Looks pretty slam dunk if you are getting a transportation charge that isn’t included in your lease language. Just wondering how you approach this and where it goes. Thanks for sharing.

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Gross usually meant gross back in the day the lease was written (depending upon the state). However, if the well was later included into a waterflood unit, that changes the situation and you might be charged according to the waterflood rules. Subsequent court cases (in some states) have changed how “gross” is interpreted. Can’t hurt to contact the Division Order group of the operator and show them a copy of your lease and get an explanation of why they are charging transportation. Some operators have their accounting software set to take deductions. The simple answer is that they agree with you and reset the software to accommodate your lease. The other answer may be that they have a valid reason. It can take weeks to get an answer. Best if you send the request by certified mail return receipt. Give them your owner name, owner number from the check stub and a copy of your lease. Keep copies of all of your correspondence.

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