Lease questions

We have a lease from 1970 for section 21 township 2 north, range 66 that allows for “free use of oil, gas, coal, wood and water from said land except for water from lessor wells for all operations hereunder and the royalty on oil and gas shall be computed after deducting any so used.” That seems to indicate that the deductions for free use of oil and gas would be taken out off the top of gross production. In other words the amount of gross production shown on pay stubs would already reflect that deducted amount. Is this correct?

Another thing I've noticed is that the price paid for oil is generally about $5 under the price of oil on any given month. The lease doesn't specifically state that the royalty owner will be paid 1/8 of the market price but there's an indication that that is implicit when it allows the leasee to “purchase any royalty oil in its possession at the prevailing market price for the field where produced on on the date purchased.” Have other people noticed a difference in the amount being paid and the market price, is this typical?

First question: In the old days operators used "free" casing head gas to power the pump jacks, put in their pickups, and other uses before well sites were electrified. That on site use was spent before it got to the tanks or pipelines and measured for sale. Lessor doesn't get paid anything for that free use You are correct.

Second question: You have big time operators. They often sign long term contracts(hedge) with pipelines and refineries that may end up above or below the quoted spot price published on a given day. If the producer sells to an affiliate, the language in the lease protects the lessor to make sure that the lessor is paid a fair amount regardless of the transaction between the producer and affiliate. Oil and gas prices paid by the purchaser are often adjusted after the fact for heating value, chemical content, and transportation charges.

Of greatest concern to you may be the cost sharing deductions other than severance taxes. Your old lease may not allow deductions. Check it out and if not allowed but taken, make the operator aware. Your have an eagle eye.