I would like for anyone with the knowledge on this, to breakdown this proposal to a lease. Below is how they want to pay royalty and a Gross Proceeds Clause that was added to the lease. What is good about it and what is not and what effect would the clause have on the paragraph about royalties Thanks

Royalties. The royalties to be paid by Lessee are: (a) on oil, (18%) of that produced and saved and delivered at the wells or into the pipeline to which the wells may be connected. Lessee may from time to time purchase any royalty oil in its possession, paying the market price then prevailing for the field where produced, and Lessee may sell any royalty oil in its possession and pay Lessor the price received by Lessee for such oil computed at the well, (less 18%) of all Post Production Costs and less the same fractional share of all production, petroleum excise and severance taxes; (b) on gas, including casinghead gas or other gaseous substance, produced from said land and sold or used beyond the well or for the extraction of gasoline or other product, an amount equal to (18%) of the net amount realized by Lessee computed at the wellhead from the sale of such substances. On gas sold at the well, the royalty shall be (18%) of the amount realized by Lessee from such sale, less (18%) of all Post Production Costs and less the same fractional share of all production, petroleum excise and severance taxes.

Gross Proceeds Clause

It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all oil, gas or other proceeds accruing to the Lessor under this Lease or by state law shall be without deduction, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas and other products produced hereunder to transform the product into marketable form.

Makes no sense to me.

One thing I see is that the Gross Proceeds clause doesn't exclude the deduction of excise and severance taxes. The "old fashioned" leases were true gross (no deductions) leases and taxes are not withheld from royalty share. The main section on royalty allows these taxes to be taken out.

I'll look at it some more. Thanks for posting and forcing me to think about this in detail.

I think you should read Tawney v. Columbia Natural Resources. It's not a long read, not too heavy on the legalese, and very informative.