First Market vs Enhanced Product with post production charges

In Oklahoma in the Mittelstaedt vs Santa Fe Minerals case of 1998 a case is made to pay royalty owners for the gas priced at the First Market value without post production charges.

" ¶ 31 I would accordingly respond to the certifying court by stating that in Oklahoma the lessee is responsible for all marketing costs until a first-marketable product is obtained. Royalty would be paid on the actual market value of the gas at that point. Other than possible transportation adjustments in the event that the first market is not in the vicinity of the well, there should be no need for inquiring into the reasonableness of post-production costs and no proportional-increase requirement. This is so because under the theory I espouse, the lessor would receive no value from the lessee’s post-production (post-marketable) enhancement of the product.77"

So if I am asking a Gas Production Company to delivery to me Royalty payments free of post production charges other than transportation,

  1. Is there a market price for First Market product? (I could not find one on the CME energy futures).
  2. If the Gas Producer only connects to the buyers pipeline with an Enhanced Post production product would a First Market price for my royalty payment be available to me?
  3. If the only market available to the Gas Producer is with an Enhanced Product, do I have to resign my lease to include post production charges, and attempt to get disclosure language in my lease to determine if the these post production cost to me are fair?

If Mittelstaedt language is added to a lease, pertaining to the requirement for the operating company to release data showing that the extra lease payment deduction beyond the first marketable gas price are shown to be reasonable, that the deduction is shown to be proportionally assessed, transforming an already marketable product to an enhanced product do operators actually release these details to a lease holder? Have you seen any of these details ever released by Sanguine Gas or Trinity Operating? Does it take a letter from a lawyer to get this released or do they release it with a letter from the royalty owner? If the cost are not reasonable (such as building a mini refinery or negatively effecting a first marketable gas price, does the lessor have any other option but hiring a lawyer to sue?

I cannot speak to the legal parts of your questions, but can address #1 and #3.

#1-there is no standard Market Price for First Market Product. Each carrier sets its own prices and each operator had their own contract with the carrier.

#3. It would be very, very rare to be able to re-sign a lease. Once the contract is signed, it is done. Would advise getting legal advice up front when signing the original lease.

It’s not possible to competently address your concerns without a review of your entire lease, so you may want to seek the advice of an Oklahoma oil and gas attorney. If you will check the directory tab on this website, at least one Oklahoma attorney is listed, or use the referral service of the Oklahoma Bar Association.