Thank you very much for your reply! Based on examples of wording that I have found on this forum and other websites regarding oil & gas leasing I am studying a lease agreement that has been tendered to me and I find problems for the lessor in nearly all of the 24 paragraphs. Many of the clauses start out fairly benign and then in the middle of the text the dialogue seems to move to the lessee’s advantage. I see examples that shift the dialogue in favor of the lessor however I still have problems with the royalty and so called “gross proceed/no deduction” clauses. I have pasted another example from a more current proposal below and would like to ask for your opinion on it. It get muddy for me at (Lessor and Lessee agree). After a little study some of these problems seem fairly easy to recognize but I think trying modify this lease myself would be problematic and foolish. Thank you for your help. Best Regards, Bob
Gross Proceeds Clause Lessee shall pay Lessor a royalty on gas at the agreed upon royalty rate based on the value of the unprocessed gas produced from each and every well on the Leased Premises, or on lands pooled or unitized therewith, calculated by multiplying (i) the MMbtu equivalent of the gross volume of gas metered at or near the wellhead in a given calendar month and (ii) the first of the month index price for Eastern Gas-South, or a successor publication (the “Index Price”). Lessor and Lessee agree that the gas royalty is being calculated prior to processing and extraction of natural gas liquids or other byproducts from the gas stream and that no additional royalty is due for the value, if any, of natural gas liquids or other byproducts contained in the gas stream. It is further agreed between Lessor and Lessee that all royalties accruing to the Lessor under this Lease shall be made without deduction, directly or indirectly, for the cost of drilling, testing, completing, producing, gathering, transporting, dehydrating, separating, stabilizing, processing, and marketing the oil and/or gas produced hereunder. Lessor agrees, however, that Lessee may deduct from such royalty payments Lessor’s same proportionate share of all production, petroleum excise and severance taxes. In the event the Index Price is not available at any time or for any reason, Lessee may select, in good faith and in a commercially reasonable manner, a replacement monthly index price determined by Lessee to reflect sales to unaffiliated third-party purchasers at locations in the geographic area in which the Leased Premises are located.