EOG Payment

I just received my first royalty payment and it looks like 20% was deducted for other costs. I guess i was under the impression that EOG received 80% and i get 20% with no other deductions taken out. Does 20 percent of what i was owed seem correct?

Marcus:

Not much to go on from your information but the mineral owner has various deductions such as severence taxes and transportation charges which are deductions from your final payment. I would contact EOG and request an explanation in regards to these deductions.

Marcus, actually sounds like you are doing great. If you were leased to Chesapeake without an expensive hand crafted lease that would prevent Chesapeake from selling to an affiliate at half price and then take away 50% to 60% of your royalty in post production costs. 20% of your 20% for severance/ production and reasonable costs of post production charges sounds normal without the afore mentioned hand crafted lease. Many people are surprised at how little they really get to keep of what their minerals sell for after being produced. If you were aware of how much they take back you might have negotiated for more royalty to offset the losses. 20% of 20% would be 4%, be glad you are not in Colorado or Wyoming signing a lease for 12.5% from which they deduct the same amount for a yield of 8.5% before federal tax and they are probably paying more for trucking the oil due to less infrastructure. If I were you, I wouldn't be pleased with what is deducted from your royalty but I would be aware that it could have been much worse. My general impression of EOG is that they are reasonably straight shooters although I have heard some rumbles of late about them being late with the initial royalty check, lately. It never hurts to check but I think you are going to find things are in order. People just don't know when they are executing the lease that all of this comes out.

IF YOU HAVE A GAS UNIT AS I HAVE YOU CAN HAVE AS MUCH AS 30% FOR COMPRESSION CHARGES

WHICH SHOULD BEEN EXCLUDED WHEN YOU SIGN YOUR LEASE BUT LIKE MANY OTHER UNSUSPECTING

ROYALTY OWNERS ,PRODUCTION COSTS WERE NOT EXCLUDED FROM THE LEASE AGREEMENT



r w kennedy said:

Marcus, actually sounds like you are doing great. If you were leased to Chesapeake without an expensive hand crafted lease that would prevent Chesapeake from selling to an affiliate at half price and then take away 50% to 60% of your royalty in post production costs. 20% of your 20% for severance/ production and reasonable costs of post production charges sounds normal without the afore mentioned hand crafted lease. Many people are surprised at how little they really get to keep of what their minerals sell for after being produced. If you were aware of how much they take back you might have negotiated for more royalty to offset the losses. 20% of 20% would be 4%, be glad you are not in Colorado or Wyoming signing a lease for 12.5% from which they deduct the same amount for a yield of 8.5% before federal tax and they are probably paying more for trucking the oil due to less infrastructure. If I were you, I wouldn't be pleased with what is deducted from your royalty but I would be aware that it could have been much worse. My general impression of EOG is that they are reasonably straight shooters although I have heard some rumbles of late about them being late with the initial royalty check, lately. It never hurts to check but I think you are going to find things are in order. People just don't know when they are executing the lease that all of this comes out.

Mr. Mcwilliams, who is your operator ? Did you have cost free or free of cost language that was negated by court ruling?

According to the legend on the statement i received from EOG, I was paid for "plant products" which pays about a third of what a barrel of oil pays. Does anyone know what a plant product is? I don t have a large interest in the well so i m not getting rich but i m curious what it is. Also EOG never answers there phone or responds to email.

Plant products can be looked up for all the things that it includes but for the most part it's, propane, pentane, butane, ethane, paraffin ect. Oil companies aren't good at answering the phone or getting back to you if they ever did answer the phone, generally speaking, although I have been shocked almost speechless once when I got an immediate callback. Usually once the lessee records your lease or a memorandum of lease, they have no interest in talking to you, what would be the point, they already have what they wanted. If you have something else they want, they will talk to you again.

This is a big, big issue that needs a ground swell revolt. The judges were bought by the oil companies to get this ruling in the first place. If a lease has "free from expenses" detailed out and is accepted by the operator when the lease was originally signed, then any deviation should or must be challenged. All expense items are part of the process and are an accountants dream world, so they can be manipulated without much of a problem. Everyone should definitely make the "Expense Free" clause a part of their lease and then everyone needs to challenge any deviation. As long as these "steam rolling" companies get away with letting the royalty owner pay their expenses, then they will continue to grab and grab until you have nothing.

r w kennedy said:

Mr. Mcwilliams, who is your operator ? Did you have cost free or free of cost language that was negated by court ruling?


MY OPERATOR WAS NFR
Bigfoot said:

This is a big, big issue that needs a ground swell revolt. The judges were bought by the oil companies to get this ruling in the first place. If a lease has "free from expenses" detailed out and is accepted by the operator when the lease was originally signed, then any deviation should or must be challenged. All expense items are part of the process and are an accountants dream world, so they can be manipulated without much of a problem. Everyone should definitely make the "Expense Free" clause a part of their lease and then everyone needs to challenge any deviation. As long as these "steam rolling" companies get away with letting the royalty owner pay their expenses, then they will continue to grab and grab until you have nothing.

r w kennedy said:

Mr. Mcwilliams, who is your operator ? Did you have cost free or free of cost language that was negated by court ruling?

It depends on how your contract was worded - if you negotiated a lease of 20% royalties and did NOT negotiate royalties with NO cost of production fees - then you get stuck with paying part of the fees. Some fees it seems, you can't escape - like enhancing the product.

Interesting statement; but, where does enhancing start and end!

Susan Nolen said:

It depends on how your contract was worded - if you negotiated a lease of 20% royalties and did NOT negotiate royalties with NO cost of production fees - then you get stuck with paying part of the fees. Some fees it seems, you can't escape - like enhancing the product.

Good question Bigfoot. I think it needs to be spelled out in every particular in the lease or there is little to no protection to the mineral owner. Otherwise, it begins and ends where the operator says it does.

Enhancing is a puzzle to me, but I know it happens. I can't explain it. Maybe someone else can.

Susan:

I definitely understand what enhancing, can be; however, in some cases, gas for example coming out of the ground is variable. It can be almost totally dry which as methane or it can include heavier fractions such as ethane, propane, iso butane, normal butane, or even some pentane. This can be sampled and sold as is in a pipeline and later sent to a plant where it can be separated and sold as individual products or if the well or wells are producing enough to make it profitable, a processing facitlity can be built on site and separtated; but, the problem here is that us little guys have no idea about this down stream stuff. True enough, if the product, gas in this case, is sampled on site amd we are paid based on the btu value or the product value, with no deductions, we have a some idea as to the value of our product. Once it has been "enhanced" by separation, we will have a very hard time keeping up with expenses or the value of the product or products. There is lease language that can be added to give the royalty owner some protection yet still gain the potential benefits for some of this enhancing; but, the clause needs to be written by someone that really understands all the in's and out's of this process.

There are a lot of potential enhancing steps that can be taken with oil as well; although, very little outside of adding a water emulsion breaker is done. This could be called enhancing; but, it is just part of bringing oil to the tank. If we allow these magicians to charge based on what they call "enhancing" the product, then we are opening up an opportunity to expense us to death.

Once again, we can see where a lease clause needs to be comprehensive. Without specific detailed language and understanding of all the issues around enhancing, then it needs to be stated that the royalties come free and clear of "all" expenses except taxes associated with the royalty owners part of the product.



Susan Nolen said:

Enhancing is a puzzle to me, but I know it happens. I can't explain it. Maybe someone else can.

I did have concerns because of just what you said, but it seems to be very hard to get around that. I do like the wording free and clear of "all" expenses except taxes. Thanks for explaining this to me.

Sounds like you didn't have good clauses in your lease and you didn't mark everything out that needed be.

That is why a good lawyer can save you money.

If you are with Chesapeake, you are lucky to see that much. Go to oilandgaslawyesblog.com to read about plant production clauses.

Their are several taxes that has to come out. In OK, their is state income tax and if you are out of state, they keep 28% off the top, so you have to file at the end of the year to get a little back if you are lucky.

When you file your Fed. tax returns, you will take depletion off and that will help a little.

Susan, I think you ask what is enhancing? It is when you improve oil & gas recovery by different methods. It maybe using polymer flooding, various chemical, gas injection etc. Why does any mineral owner want to pay for that when the oil companies take most of the money already and they will enhances the well if it's a little more profit. Also, most investor plan on making their money back within 5 years, so they can drill other wells.

I appreciate all the replies. I should have done more research before i signed the lease. Honestly, the land man made the deal sound to good to be true so i just signed Lessin learned.

Marcus,

That is what Land men do, make it sound good and show you a little check, but tell you, " you will get a well and be rich". I'm still waiting to get rich and I have had several oil/gas wells. But, I make sure I read and re- read the lease. Then I go to an attorney that does nothing but oil/gas work. Never try to out guess an oil company. If you don't get leased, and they hit a good well, they will be paying 3 to 4 times more for the lease and will work with you on a good lease.

Marcus:

Don't feel bad, you are in good company. There is considerable data that says that 85% of the people do just what you did. Our job is to talk to people, our neighbors and anyone else we can talk to that will listen and caution them to wait and don't do anything rash. If the deal is there today, it will be there tomorrow. Signing a lease is for most of us a "once in a lifetime" opportunity that may or more than likely come back to haunt us if we let the "used car salesman" Landman talk us into signing his lease without doing our homework.

Marcus McBride said:

I appreciate all the replies. I should have done more research before i signed the lease. Honestly, the land man made the deal sound to good to be true so i just signed Lessin learned.

Everybody embrasses the idea of free money, with no costs associated with it...me too! I can't say that I have encountered that too often in my life, but I sure like the idea of it.

Should for instance an oil company, who has already taken all the risks and spent millions of dollars to get your share of the minerals out of the ground, also pay all the costs of getting those barrels and MCF's to market too? If that operator uses its volumes in the area to get a better price, that is "enhancing" the marketabiliy of your minerals, yes? EOG is going to get a better price for its product than Mamacow Oil and Gas, yes? Of course. Whats that worth to you?

For example, would you rather have all your gas flared into the never, neverland or would you rather pay your 0.0025435 share of the cost of sweetening that gas and compressing it down a pipeline that is already stuffed full of gas to get it to market? I think that 0.0025435 of nothing is worth nothing. What if the ONLY way you can even sell that gas, period, is under terms with a gatherer such that nobody upstream benefits from the liquids that are stripped? Would you rather just flare it? What about getting your oil to market? Should Bakken operators pay 15-18.00 dollars a barrel to put that oil on rail car to get it to Cushing, because that is the only market available, at it's sole expense, without you having to pay for those marketing costs? If they did not, what would your share of the minerals be worth then? You gotta get the stuff outta the ground and sold for it have any value.

So, this idea of whose responsibility it is to get minerals to market, who should pay for what...it works both ways. Take a look at the cool satellite images of the Bakken, and the Eagle Ford, and ask yourself why is all that gas being flared? Lack of infrastucture or low prices and onorous lease provisions? What happens when the good stuff, the sweet spots, all gets drilled up and prices are down to 75 dollars a barrel? If you still think you can play hard ball with these shale guys, good luck.