New Leasing question

I dont understand this statement on an addendum to lease. Is this good or bad? “Lessor’s share of royalty shall bear its costs or any expenses charged by any third party not affiliated with Lessee to separate, gather, dehydrate, compress, transport, process, treat or store oil or gas produced from the leased premises.”

Maybe you could say that clause is “good” in the sense it prevents those costs being deducted from your royalty payments if the charges came from an entity owned or related to the lessee/well operator.

For example, there have been cases where operators used subsidiary companies to build gathering systems, or to contract with pipeline operators, so they could then charge royalty owners above-market transportation costs that went back in their own pocket.

For a mineral owner, a better clause would say the lessee/operator can’t deduct any of those post production costs from their royalty payments, often referred to as a “free royalty clause”. Use the looking glass feature at the top of the page to search using those key words and you should find a lot of discussions on the subject. Those clauses aren’t easy to negotiate, can be worthless if not worded correctly, and could require a lawsuit to enforce, but it’s worth trying.

1 Like

This is the clause they re-worded and added things from 2 addendums. The "third party was confusing to me. I don’t understand. Hope the picture will pull up.

Thanks for replying and taking a look at it.:blush:

This is a totally pro-operator clause and will allow unlimited costs to be charged to your royalties. You should consult an attorney to help with your lease.

It’s bad. Take TennisDaze’ advice. Not just any attorney, but one that knows oil and gas and represents royalty owners.

1 Like

I agree, you do NOT want this provision in your lease!

Thank you. Im trying to find a lawyer who isnt so far away with experience. Its crazy that they list experience and also list divorces, criminal defence, accidents… I would like someone who is more focused for a royalty owner and who will respond.

I am out of state and have the same problem.

There are several attorneys with oil and gas experience listed in the Directories tab above or you can go on the Texas Bar Association and look for attorneys with oil and gas as their primary business. Look for their rankings.

1 Like

Thank you. You are very informative!