No Deduct Clause

Can anyone explain this clause? It’s different than any we have sign before. Any help will be appreciated. Thank you. I especially do not understand the tailgate language.

GROSS PROCEEDS CLAUSE: It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all oil proceeds accruing to the Lessor under this lease or by state law shall be without deduction for the cost of line fill fees, midstream storage, and blending incurred by Lessee while transporting the oil, in whole or in part, to a downstream sales point; however, in no event shall oil royalty be computed based on a price greater than that received, or a volume more than that sold, by Lessee. It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all gas proceeds accruing to the Lessor under this lease or by state law shall be without deduction for the cost of producing, gathering, compressing, storing, separating, treating, and dehydrating the gas produced hereunder to the inlet of a downstream processing plant; however, processing and transportation downstream of the tailgate of a processing plant shall be deductible for all purposes, and in no event shall Lessor receive a price greater than the price received by Lessee.

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yes that prohibits them from deducting there expenses
that you should not be paying , but for two decades I have had to put a similar clause in order to get my little share of what actually belongs me, I am not responsible… I would;d have to have an oil and gas attorney as mine passed , and he was a good one in oil and gas

I would question them about the processing etc downstream of the tailgate . they are not wanting to pay refinery fees which that is part of their responsibility, and pass the expense to royalty owner, I would discuss this with an attorney or professional

I would also question about about the downstream of the tailgate of the plant. They also did not include all of the words that they could charge for and they also did not discuss a third party.
I would not sign that one.

Here is a better one that I have seen that is more in the mineral owner’s favor. Look at it for comparison and notice the difference in wording. Suggest that you get an attorney to look at any clauses as I am not giving legal advice.

"No Deduction: Lessor’s royalty will never bear, either directly or indirectly, any part of the costs or expenses of production, separation, gathering, dehydration, compression, transportation, trucking, processing, treatment, storage or marketing of the oil or gas produced from the leased lands, or any part of the costs of construction, operation or depreciation of any plant or other facilities or equipment used in the handling of oil or gas, regardless of whether the costs or expenses set forth herein are incurred directly by Lessee or Lessee’s purchaser, affiliate, a midstream company or any other third party. For the purposes of this subsection, where any third party (including, but without limitation, any purchaser, affiliate of Lessee or midstream company), receives or retains a portion or percentage of the production (including, but without limitation, oil, gas, residue gas, processed liquids (or natural gas liquids) or any other constituent or component derived from the gas) in exchange for incurring any of the costs or expenses set forth herein, such as under a “percentage-of-proceeds” contract as the term is used in the industry, that portion or percentage received or retained by the third party shall constitute an indirect cost or expense that shall not be assessed against Lessor’s royalty in the same manner as if such cost or expense had been incurred directly by Lessee. In no event shall Lessor receive a price that is less than the price received by Lessee or any Lessee affiliates thereof. "


Thank you all so much. I didn’t like it either and I really appreciate the verification of our skepticism. Thank you for the clause suggestion Ms. Barnes. This is the first time leasing with these people. No other entity has done this. It’s frustrating & quite frankly a turn off. Bearcat leased us on this area last time for Continental & although they weren’t super easy they were fair. Thanks again!!

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I believe that is the “new” Continental clause. I received one like that this last week as well.

Thank you Todd. Did you try to change it? We have & they are willing to strike some but not the part that says Lessor can not make more money than lessee. I’m paraphrasing. Can I ask who approached you to lease? Was it Superior Title or Pointer Oil & Gas? We’ve leased through brokers before that were working for Continental but never had these issues. Thanks for your help

I can not see any scenario where a mineral owner could make more money than the operator. Why would they drill under those circumstances. It isn’t like our royalties are more than their share. I find it puzzling…to be nice.

Neither of those companies. The interest where I was contacted is in Carter County. Maybe a little misunderstanding of that clause. It basically means that if the Lessee, after costs, etc receives $2.00 for a production, the Lessor can’t receive more than $2.00. Obviously the operator will “make” more money as they are getting 81.25% of the revenue while the mineral owner gets 18.75%. (simple explanation/example)

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