Hello and here’s wishing everyone a happy and blessed new year!
I have royalties from a recent well operated by BCE-Mach III, LLC (McCully 14/11-18-6) in Kingfisher county, OK along with existing wells operated by Diversified Production, LLC.
My concern is with BCE-Mach taking a small portion off gross proceeds from the Gas and Natural Gas Liquid (bi-products) under ‘processing’, ‘compression’, and ‘plant fuel’. Diversified, along with other previous operators, never took out these expenses.
I’m also locked in production to the original 1950’s lease agreement of only 1/8 royalties.
Are these fees something I should contest to see if they shouldn’t be taken out? I received my first production statement last month, although this will be my first month’s payment after I needed to submit a W-9 to correct the federal tax withholding in which the company voided the first statement and issued a current one for December.
Let me take a moment and also thank all the staff here at mineral forum and pass along my best wishes into the new year!
You need to look at your original lease and see if it said Gross or Net in the granting language. If it says Gross for both oil and gas, then contest it. Many companies accounting software is set up to take post production charges, but you will need to contact their division order department to reset your part of the deck.
Whew, that old 1954 lease is somewhat difficult to read, but here’s the distribution section of the agreement:
1st. To deliver to the credit of lessor, free of cost, in the pipe line to which lessee may connect wells on said land the equal one-eighth part of all oil produced and saved from the leased premises, or, at the option of lessee, from time to time the market price at the wells of such one-eight on the day it is run to the pipe line or storage tanks.
2nd: To pay lessor for the gas from each well where gas only is found, while the same is bring used off the premises, or if used in the manufacture of gasoline, a royalty of one-eighth (1/8) of the market value of the gas at the well, and lessor to have gas free of cost from any such well for all stoves and all inside lights in the principal dwelling on said land during the same time, by making lessor’s own connections with the well at lessor’s own risk and expense.
3rd. To pay lessor of gas produced from any oil well and used off the premises or in the manufacture of gasoline, or any other product a royalty of one-eighth (1/8) of the market value of gas at the mouth of the well, payable monthly at the prevailing market rate.
Again, the Mach miscellaneous fees are deducted from the gas, and gas by products, not the oil. It appears the statement in the 3rd paragraph “market value of gas at the mouth of the well” would indicate gross, not net, as you’d mentioned in your response.
Maybe I’ll have to move back to the property, put a mobile home on it and make connections for my free gas as mentioned in paragraph two!
Thank you for the feedback Martha and all the work you do at this forum!
Hi Martha. I contacted Mach and left a message for a return call. Regarding the gross vs. net, does the lease agreement language I noted in my previous message appear to be correct as far as being gross proceeds?