I’ve noticed this year large 'other deductions ’ in my royalty checks and 1099. As a royalty interest owner (not working owner) I would think these costs for transportation and processing should not be passed on to me. Are others seeing this? What can be done to dispute it?
Answer depends on particular state where your minerals are located and the exact written terms of your lease. In Texas you will be charged these costs unless your lease prohibits them and the lease language complies with requirements based on several court decisions. Some states have statutes that will limit or disallow these charges. However, even then you need to be very careful about lease terms. Bottom line is not to simply sign the lease form presented by an oil company as it is written to protect the company rather than the mineral owner.
Well said.
Thank you for your reply TennisDaze. Good advice.
The minerals are in North Dakota. I'm not aware of any changes in the law, but then again, it's not something I would know about. I'll do a bit of research. What I do know is that the 'Other deductions' amount in 2015 was about 15% of gross proceeds and in prior years it was less than 1%.
With regard to the lease language, it states:
"Lessee agrees... To deliver to the credit of Lessor, free of cost, in the pipeline to which the Lessee may connect wells on said land, the equal (1/8 th) part of all oil produced and saved from the lease premises".
So I interpret that as a situation where any costs to transport or reprocess the oil from local storage (so, truck it, ship by rail, etc. off the location) may become an added cost they can pass down. I'd imagine those costs have gone way up given the amounts produced and the glut that needs to be handled and stored. So, I may have the answer to my question.
You might check to see if your operator has changed.