No Deduction Clause

I have been negotiating lease terms with Continental land Resources regarding mineral interests in sec 2, T6n, R9E and Sec. 36, T7n R9e. here is the no deduction clause they offered:

NO DEDUCTIONS: 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, 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, Lessor’s share of 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.

It seems to me that the last two lines of this clause cancels out the no deduction part of the clause. I asked the landman for clarification and inquired as to what other costs besides the ones mentioned would the operator incur to enhance the value of the oil, gas or other products. As of yet he has not responded to my question.

I am open to any information anyone can provide regarding this matter, thank you.


Virgil: That looks like my No Deduct Clause, and trust me when I say it has not stopped anyone from being prudent about their deducts. With that clause, I have seen in excess of 40% of my gross revenue deducted.

Thank you for your response Claudia. The landman stated that they were willing to add a depth clause modify other language in their lease but the no deduct clause would not be changed. When asked about cost to enhance the gas/oil etc. he would not answer and that's where we are now. Thanks again for your response.


Best of luck. I've found it is getting harder and harder to get them to negotiate. In addition, it appears there is a trend of drilling the wells and not completing them. I'm assuming the decision to not complete is based on the low price of oil and gas. Regardless, it ties up our leases for an unspecified period of time. If you can get wording that states the primary term is tied to the date of completion, I'd include that.

Hi Claudia,

Assuming a three year lease, if the well is drilled within the three years, but not completed, then doesn't the lease expire within a year after the primary term (ie, 3+1=4 years)? I am assuming that without production, the lease cannot be held. I bet I am missing something here - educate me :).

Would love to hear what some of the wiser and more experienced folks on the forum say.

The bottom line is that I failed to carefully read the fine print ... because I was focused more on getting the terms in my Exhibit A. The content of the lease reads:

“If the Lessee shall commence to drill a well or commence reworking operations on an existing well within the term of this lease or any extension thereof, or on acreage pooled therewith, the Lessee shall have the right to drill such well to completion or complete reworking operations with reasonable diligence and dispatch, and if oil, or gas, or either of them, be found in paying quantities, this lease shall continue and be in force with like effect as if such well had been completed within the term of years first mentioned.”


You are Right On with your comment. Strike the last two lines !

Steve Carter