I am close to signing a lease but still have one point I disagree with the Company on. I am getting the advice of an attorney but will not be talking to him until next week. In the meantime I'm curious as to how the "pro's" on the MRF would intrepet this.
On the Exhibit "A" it reads: "Lessee agrees to deliver to the credit of Lessor, free of cost, in the pipeline to which Lessee may connect wells on said land, the equal one-fifth (1/5) part of all oil produced and saved from the leased premises.
Notwithstanding any other provisions of this lease, Lessor's royalty shall be free royalty. Lessor shall not be required to pay and Lessor's royalty shall not be reduced on account of or charged with any of Lessee's costs making the products produced hereunder ready and available for market including, but not limited to, the costs of transporting, compressing, and processing oil, gas, and other gaseous or liquid hydrocarbons, it being the duty of Lessee to transport the same to the purchaser thereof free of all costs to Lessor. Royalty shall be calculated and paid on the price received by Lessee from the purchaser."
I feel the above says I would not have any costs deducted from my royalties while the landman and her management say they are charged deductions from the purchaser and the last sentence allows them to pass my share of the deductions from my royalties.
Anyone have an opinion??
Thanks,
Terry
Mr. Petersen,
Please private message me for answers to any questions you may have.
Yours,
Wes Luke
Dear Terry,
Only an opinion. This is a question for a bona fide expert in natural gas marketing, where the clause appears to contradict itself. With the last sentence in place, does the previous portion of the paragraph be intended to be given effect, or is it mere surplusage? Or vice versa? I would be interested to see where the market is set in the royalty provision - at the wellhead or at the point of sale. You must examine the 4 corners of the document rather than a snapshot of one phrase, clause or provision.
I think that this clause should be reworked by competent council.
Any costs past point of delivery, you will likely share in. Such as transportation.
The "price received from purchaser" is troubling. Consider that Lessee's gross proceeds could be reduced by costs paid by the purchaser or any other party that are normally paid by the lessee to place the gas in a marketable condition, or to market the gas.
Better to strike the clause and offer an alternative such as costs chargeable to lessor's royalty will not exceed $0.10 per mcf.
Mr. Cotten,
Yes I agree that there is a contradiction to this paragraph. Not that it would be to my benefit but if it can be intrepeted as the landman says it is, only the last sentence needs to be in the Exhibit "A".
The royalty provision sets the market at the "mouth of the well". And by the way if I may ask what are the 4 corners of the document?
I will definitely have my attorney rework this before going forward with it.
And I do like your idea of setting a max charge on the mcf.
Thanks for your help.
Terry
Dear Mr. Peterson,
The 4 corners refers to the document as a whole.
For my largest client, I have a very special lease form that pegs the royalty rate at the Henry Hub price less either 5 to 7 cents, negotiated. I can do that because everybody pretty much sells at Henry Hub prices where their lands are located.
My North Dakota royalty clause does not peg the price at the wellhead or point of sale. To me, that makes more sense. It is attached hereto. See what your attorney thinks about this clause. The clause was excised from my Professional North Dakota Lease Form and as such is protected by the laws of copywrite.
Terry Petersen said:
Mr. Cotten,
Yes I agree that there is a contradiction to this paragraph. Not that it would be to my benefit but if it can be intrepeted as the landman says it is, only the last sentence needs to be in the Exhibit "A".
The royalty provision sets the market at the "mouth of the well". And by the way if I may ask what are the 4 corners of the document?
I will definitely have my attorney rework this before going forward with it.
And I do like your idea of setting a max charge on the mcf.
Thanks for your help.
Terry
2929-NDRoyaltyProvision.docx (18.4 KB)
Mr. Cotten, I will private message you regarding the royalty provision.
Terry Petersen
Let's not forget the horrific attack on our country almost exactly 10 years ago as I type this. The 3,000 men, women and children who died that day did nothing but show up where they were supposed to be.
GOD BLESS AMERICA !!
Mr. Cotten and Mr. Luke,
Thanks for all your help. I very much appreciate it and all of us on the MRF are fortunate that you are willing to share your expertise.
Terry