Deductions from Royalties

Can anyone point me to where I can find out what Deductions Oil Operators are legally allowed to take from Royalty Payments? Specifically Wyoming.

I still cannot understand how an operator can pull out $130,000 from a well, deduct $85,000 plus in post production costs for that one well, then take more deductions and end up paying each of 12 mineral right owners each $0.15 from that well. And at the end take out even more Taxes (not on behalf of the mineral rights owner) and more Deductions from the final royalty checks.


First place to look is on your lease. Does it allow post production charges. Most drafts of leases do and if you sign it, then they can take out those deductions.


@M_Barnes I honestly do not know if the lease addresses post production costs. The original lease was with Chesapeake until they sold their interests to Continental. Continental sent us new Division Orders for us to sign last September. Their office told us they were paying the same as Chesapeake. They no longer are. They’re paying a lot less since we signed a new lease for totally different areas in October. I’m totally at a loss as what to do to rectify this. Continental also refuses to supply copies of the Division Orders and second lease.

The original lease should be on file with the county. Or at least a memorandum. Most lease drafts do include post production charges (PPC) unless you negotiate them out. If you signed the original lease without doing some work on it, you probably do have PPC in there. When CLR said they are paying the “same”, they meant the same decimal percentage of the products sold, not the royalty dollar amount. As wells produce, they decline in volume. Also, prices for the oil and gas are quite a bit lower this year than last year, so you may have have started with a high check amount, but over time, they will naturally go down.

On the leasing, bonus amounts are also down this past year due to competition )or lack thereof). If they sent you Division Orders in September, there is usually a copy in the packet for your to keep. If they assumed the original lease, they will not send you a second new one as the old one is still in effect.

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I do not see anything in the first Lease or Division Orders about Post Production Costs. They’re taking around 65% of the Revenue just for post production costs in areas listed in that lease. That’s definitely too high. Oil prices are not down enough to warrant 17 cents in Royalties on $130,000 with a 0.2 interest.

The new lease they sent for new areas the bonuses paid were more then 3x what we’ve received in the past to sign a lease. They’re expecting a huge boom in those new areas.

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Ok. So, I’m getting a little worried about if I did the lease right on mine now. Does this read right to get me out of paying all those deductions or is there a loop hole?

@Wendy1 I’ve never seen that on a lease before. I’m interested to know as well.

It depends on all the language in your lease regarding royalty taken together and the state where your minerals are located as state law varies.

Wonderful. Well, I tried.

Be aware that many companies use accounting software that is automatically set to take the post production charge deductions. You may have to remind (frequently) an operator that your lease does not allow such deductions. Send all requests to the royalty owner relations department by certified mail return receipt and attach a copy of your lease where the clause is highlighted. Ask for a return of funds and interest on those funds. Gets their attention.


If you don’t sign a DO (e.g. in Oklahoma), are royalty owners still required by law to pay post production deductions?

It depends upon what your lease says. If you allowed it in the lease, then yes. If you did not, then you do not. (If the operator’s accounting software is set up correctly.)


Guess I need to find out more on how to negotiate a lease so I’m ready when these leases are up I can request changes.

Question - if only some mineral rights owners negotiate a lease with no post production deductions do those who do not end up paying more post production deductions to compensate?

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