I have 25% listed in our lease with Colgate. There is a paragraph in the lease which has a bunch of jargon that almost makes it sound as if they have any other leases with lesser percentage of royalties then we will receive the lower amount. Is that possible that they would use such sneaky misleading wording to pull off some bait and switch like that or am I miss understanding the lease? Thoughts?
You need to post the exact language so that someone can help you. Every lease is slightly different.
Lessor hereby agrees that the Lessee at its option may discharge any tax, mortgage or other lien upon said land, either in whole or in part and in event Lessee does so, it shall be subrograted to such lien with right to enforce same and apply royalties accruing hereunder toward satisfying same. It is agreed that if this lease covers a less interest in the oil, gas sulphur, or other minerals in all or any part of said land than the entire and undivided fee simple interest estate (whether Lessor’s interest is herein, specified or not), or no interest therein, then the royalties, and other monies accruing from any part as to which this lease covers less than such full interest, shall be paid only in the proportion which the interest therein, if any, covered by this lease, bears to the whole and undivided fee simple estate therein. All royalty interest covered by this lease (whether or not owned by Lessor) shall be paid out of the royalty herein provided. Should any one or more of the parties named above as Lessors fail to execute this lease, it shall nevertheless be binding upon the party or parties executing the same.
So my question is does this in any way affect our percentage of royalties regardless of what others agreed to? We agreed to 25% in our lease.
That’s called a “proportionate reduction clause” and is in almost every Oil & Gas Lease (OGL)… like 99.9% of all OGLs… if it is not included, then the Landman is probably getting fired.
It is saying that if you don’t own 100% of the minerals (MI) then your royalty payments are reduced by the amount owned. eg:
- if you own 100% MI and leased at 1/4 (25%) royalty, you get paid based on .25 [ being =(1*1/4) ]
- if you own 50% MI and leased at 1/4 (25%) royalty, you get paid based on .125 [ being =(0.5*1/4) ]
To answer your question: It does not mean that they can reduce your OGL’s royalty amount to the least that some other party accepted in the same tract.
Hope that helps!
Thanks! I appreciate the help for those of us that are clueless:)