There is a statement in my royalty clause that states....
It starts...which I've read is fine...
Royalties to be paid to lessee on oil or other hydrocarbons is x% of that produced and saved or to the credit of the lessor in the pipeline or tanks to which the well may be connected.
Then it says...
"In either case lessors interest shall bear its proportionate part of any expense for treating the oil to make it marketable.
A) What do they mean by treating the oil to make it marketable?.
B) Are they trying to say that they will take this out of the royalty payment?. I figured that since I am giving them 80+ percent of the value of the oil that my 16-18% was free of further "treating" or processing fees. Basically shouldn't my % be from the gross value of the oil?.
Thanks in advance...
Dear Dakota 67,
Oil is a mineral, like the diamond on your finger. Just as diamonds have different qualties, so does oil. Oil may be loaded with paraffin or other contaminants. The oil would need to be treated to increase its ability to be sold.
As to you "giving" the oil company 80+% of the assets, they actually did pay for the opportunity to explore and be rewarded for the expertise and taking risk.
I personally have a problem with being charged for gas treament and transportation, etc., but for whatever reason, I do not have a problem in paying my share to increase the value of the product.
Although that is what the lease says, it may be that there will be not need to treat your oil to make it marketable. Ask someone who is receiving royalty in the area of your property and see if they are being charged.