No Deduction clause

Oklahoma Mineral Rights Hughes County, OK
1

I just received this No Deduction clause which the land company is proposing to add to its lease agreement. I would appreciate any input or recommendations regarding this clause, thank you.

NO DEDUCTIONS: Lessor's royalty interest shall be free of cost into the tanks or into the initial purchaser's pipeline on the leased premises. Under no circumstances shall Lessee or its purchaser deduct any expenses of drilling, operating, storing or marketing from the royalties payable under this Lease. Neither Lessee nor its purchaser shall deduct any of the following expenses that are incurred on the leased premises: gathering, separating, treating, dehydrating and compressing. Lessee may deduct Lessor's proportionate share of expenses incurred off the leased premises for compressing, dehydrating, processing and transpo1ting gas if such costs are reasonable and necessary and allow Lessee to obtain a better price for an already marketable product. "Leased premises" shall be deemed to include the actual leased premises and any drilling and spacing unit(s) that contains the leased premises. In no event shall Lessor be paid a price more or less than the price paid to Lessee by a nonaffiliated purchaser.

2

"Lessee may deduct Lessor's proportionate share of expenses incurred off the leased premises for compressing, dehydrating, processing and transporting gas if such costs are reasonable and necessary and allow Lessee to obtain a better price for an already marketable product."

The above clause is why you need someone in your corner. This explicitly allows deductions. I cannot name ONE item that could not be claimed to obtain a better price for a product.

Best,

Buddy Cotten
3

I agree with Buddy. If you sign the lease worded that way, they may say they "enhanced" the product price by what, a penny, and how can they prove it? That would open the door to them charging you any number of random "post production costs" that can eat up your royalty quite quickly. Do not sign it. Delete "Lessee may deduct Lessor's proportionate share of expenses incurred off the leased premises for compressing, dehydrating, processing and transpo1ting gas if such costs are reasonable and necessary and allow Lessee to obtain a better price for an already marketable product."