Loop Holes in a Lease Clause?

Oil and Gas Leasing Help
#1

Would anyone agree that this clause that is written in my lease (unsigned as of now) has some loop holes in it?

(d) The royalties payable under the Lease will be free of all production and post-production costs. However, Lessor’s proportionate share of any such costs that result in enhancing the value of the oil, gas or other products to receive a better price may be deducted from Lessor’s share of production so long as the deductions are based on Lessee’s actual costs and the total amount of the costs do not exceed the amount of the enhanced value.

How would I know if this is being done? "so long as the deductions are based on Lessee’s actual costs and the total amount of the costs do not exceed the amount of the enhanced value"

How would I know what the REAL costs were?

#2

Ms. McGuire, I’m not sure how you can check their cost for enhancing the value but I would have an attorney look over the wording of your lease offer. They may claim that some of the production or post production cost enhance the value therefor they may deduct for that.

#3

I would say that this is telling you right from the start that you ARE going to charged. They will figure out some way. See all the post about Chesapeake with holding the fee's on some of the leases that they purchased that were already in production that other companies did not with hold.

#4

Right - I don’t think the way this is written into my lease keeps me from being charged whatever they please.

#5

Dear Ms. McGuire,

You might want to consider a totally reworked royalty clause that includes a plant products provision - since that is what they are driving at anyway, just in poor form.

Also, if you do not trust the operator, you should consider an audit privilege provision as I mentioned to you in a cross post that you made.

#6

Thank you Mr. Cotton

#7

Ms. McGuire,

It sounds like it's time for you to think about hiring a mineral manager rather than an attorney. Most lawyers are charging $400.00 an hour or more. A good mineral manager can provide you with an excellent lease for around $100.00. Also, most oil and gas attorneys do O & G as a sideline rather than their only line. They don't fully understand the O & G business. I wish you the best at whatever you do.

Yours,

Wes Luke

#8

Mr. Luke, I find your advice to be excellent!

#9