I am in negotiations with Antero and I believe the different options the landman has given me are basically the same only worded differently, and both of them seem to screw me over. I apologize for the long post, but I need help on how to proceed. I do not want deductions on our royalty and I want our royalty to be on the gross sales and not the net. He keeps telling me I don't want gas to be sold at the wellhead, yet when I read the original lease that's what it sounds like is happening to me. He offered me three choices, but they all sound to me like they work out to be the same result. What should I do? We have a small interest and the rest of the family has already signed except for the three of us that are sticking together. (Note that where it says one-eighth royalty, he as agreed to 15%).
1) This is what the original lease offer said:
Royalties.
The royalties to be paid by Lessee are: (a) on oil, One-Eighth (12.5%) 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 One-Eighth (12.5%)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 One-Eighth (12.5%)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 One-Eighth (12.5%)of the amount realized by Lessee from such sale, less One-Eighth (12.5%) of all Post Production Costs and less the same fractional share of all production, petroleum excise and severance taxes.
As used in this provision, “Post Production Costs” shall mean all costs actually incurred by Lessee or its affiliate and all losses of produced volumes whether by use as fuel, line loss, flaring, venting or otherwise from and after the wellhead to the point of sale. Post Production Costs includes, without limitation, all costs of gathering, treating, processing, blending, marketing, compression, dehydration, transportation, removal of liquid or gaseous substances, and/or removal of impurities of or from the affected oil and gas, and costs of any other activities associated with making the oil and gas ready for movement, sale or use. For royalty calculation purposes, Lessee shall never be required to adjust the sales proceeds to account for the purchaser’s revenues, receipts, costs or charges, or other activities that occur, beyond and past the point of sale. Lessee or its affiliate shall have the right to construct, maintain and operate any facilities providing some or all of the services identified as Post Production Costs. If Lessee or its affiliate does so, the actual costs of such facilities shall be included in the Post Production Costs as a per barrel or per mcf (or per mmbtu, at Lessee’s election) charge, as appropriate, calculated by spreading the construction, maintenance and operating costs for such facilities over the reasonably estimated total production volumes attributable to the well or wells using such facilities.
In no event will the royalties payable hereunder exceed One-Eighth (12.5%)of any governmentally-imposed sales price ceiling applicable to Lessee's sales or One-Eighth (12.5%)of the net amounts received by Lessee not subject to refund, whichever is the
lesser; provided that any amounts held by Lessee subject to refund will be promptly distributed, without interest, when Lessee's sale price is finally determined by judicial or administrative authority.
2) When I asked for a cost free royalty he said, "We have a gross proceeds clause that I shall include. If I remove the post-production fees allowable, the royalty offered will be reduced to 14%; your choice."
3) When I told him that changing net to gross was the same as removing post-production costs and questioned why we should take a deduction if we did both, he responded with this:
Regarding market enhancement / post production costs: it costs the company lots of money to enhance the by-products for ultimate sale; you will share in that cost on a pro-rata basis with the end result being you will receive MORE revenue to your account than you would have had you been paid at the well-head (and thereby not receive any revenue from by-products that were enhanced and later sold) without any post-production cost-sharing.
I will move the royalty figure back to 15% and include the gross proceeds language.
I am pasting a copy of the gross proceeds (market enhancement) clause requested:
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; however, any such costs which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from Lessor's share of production so long as they are based on Lessee's actual cost of such enhancements. However, in no event shall Lessor receive a price that is less than, or more than, the price received by Lessee.
Everything after the "however" sounds like they will just make all the deductions anyway.
- How are these three variations different?
- What should I do to get what I want?
- If I can't get what I want, which offer is in my best interest?
- As an aside, I have no clue what that last paragraph in the original lease language means about any government-imposed sales price ceiling...any help on that?
Thanks for your help!