Questions regarding royalties and who monitors the lease contract

My proposed "draft contract" from Terra Services (EQT), regarding a lease in which I have an inherited 1.2958 acres (of the 124 total acres), states that "The Lessee shall pay monthly to Lessor a royalty of one-eighth (1/8th) of the proceeds of the sale of all oil produced and sold from the premises after deducting charges for making it merchantable and transporting the oil to the point of sale, and shall pay monthly to Lessor for all gas produced and sold from the leased premises, one-eighth (1/8th) of the amount realized (as defined below) by Lessee. The "Amount Realized" is the . . . [This is followed by eight lines of "expenses" they could possibly incur during their process.] My questions are: first of all, it seems that in other comments that I have seen where average royalty payments in Wetzel County should or could be around 15 to 18%, but is this "1/8th" actually mean 12.5%? Secondly, who monitors this month to month, e.g., I also have a ten-year lease with the same company for a larger tract just north of this tract, which was signed in 2010? However, that was before the era of blogs. I've also never heard a word from them since regarding any royalty payments. Their new proposed contract is written such that they can essentially include everything from soup to nuts as an expense item prior to sale that they can write off. How or why should I trust them with this type of contract terminology?

Alan, I agree with you that 1/8 (which is 12.5%) is low for this county.

Do you know about this site for Wetzel County records?

There may be things there that might help you see other leases.

I would recommend consulting an attorney who deals with oil and gas. I can recommend a few in the area if you want. Almost everybody gives a free initial consultation. EQT is a difficult company to get a good lease with. If you have an attorney helping, you have a better chance of getting a decent lease, at worst. Small acreages don't give the bargaining power that larger ones do, but a good attorney can make the most of your acreage.

EQT is really notorious for deducting many things for expenses and sometimes actually having a negative balance on the check (you owe them).

Nancy, Yes, I have been shown a tract map by the contract landman, and finally told that the site center would be 39.58508, -80.65161 that I've viewed on Google Earth Pro. It appears to be on a ridge line slightly below the tract of land leased in 2010. Like everything else in the area except for the carved out roads and drill pads, it's just virgin forest. That's good information to know about EQT. In other words, DON'T EVER EXPECT any sort of royalty check out of them. I would also think that 15% would be a minimum percentage anyway. If they're bound and determined not to pay any royalty payments anyway, "1/8" (12.5%) just makes it that much easier for them.

You should be able to negotiate that royalty up to 18%. That's pretty common for negotiated royalties in Wetzel County. Sometimes they have areas where they simply won't go up to that, but 18% is common for negotiated royalties.

With EQT you can get them to promise to cap post-production costs. We've seen them offer (after we ask) either $.60/MMBtu or $.80/MMBtu as the cap. We always ask for $.25/MMBtu and end up somewhere in between.

Other companies will give you a gross proceeds lease. Reach out to Antero Resources, Tug Hill, or American Petroleum Partners and see if they're interested in your property. We've gotten gross proceeds leases from each of those.

Now it sounds like they may be moving more towards what would be considered a "gross proceeds lease," i.e., if I'm interpreting this correct, one that they say doesn't include post-production costs. I haven't talked directly to them yet, but my brother's interpretation is that they assume that if it is a "gross proceeds lease" rather than a lease utilizing "net-back" or "work-back" method to calculate royalties, later subject to post-production expenses, that justifies them keeping the royalty at 1/8 (12.5%), rather than 15% or 18%, even if it is Wetzel County. Were you saying that companies could or should give you both a gross proceeds lease (and is that truly a lease without post-production costs attached?), as well as a lease for more than a royalty of 1/8 for Wetzel County? I think they might be moving towards a gross proceeds lease because I wanted to talk about capping post-production costs in general. I had completely familiarized myself with the EQT v. Patrick D. Leggett, West Virginia Supreme Court Case, filed May 26, 2017 (No. 16-0136), regarding royalties and post-production costs (even though that case is for Doddridge County). So in that respect I already have a general understanding of how EQT likes to operate its royalties and post-production costs.

Nancy Mosley indicated that she "can recommend a few (W.V. oil and gas attorneys familiar with Wetzel County) in the area" in my comment from July 22. I just happen to be at the point where I could utilize some attorney names, if you could possibly provide such a list. Thank you very much.

One is Kyle Nuttall, on this forum, who replied on July 24, below. You can contact him through the forum.

Another is in Ritchie county Scott Windom

Another is in Tyler county, Dean Rohrig

I would recommend contacting all 3 and asking how they proceed with this sort of thing. I think everybody gives a few minutes on the phone to talk about fees, ideas, etc.

You want somebody who has been involved with negotiating with the company you are dealing with, and has insight into how they operate. If it is who I think it is, you need a lot of good help. Some companies are very difficult to deal with.

Thank you very much, Nancy. I will contact them after I first contact my brother, who is an adjoining lessor.

Most of the companies will give you both a gross proceeds lease and 18%-ish royalties. We have never negotiated a lease for 12.5% royalties, and have gotten gross proceeds somewhere north of 80% of the time, with the non-gross-proceeds leases being with EQT. Even EQT is bending on the gross proceeds issue now, though.

Leggett shouldn't affect your lease directly. That's about old leases with flat rate royalties.

If EQT won't deal with you, contact Antero, Drilling Appalachian Corporation (DAC), Appalachian Petroleum Partners (APP), and Tug Hill. All four are working in Wetzel County to some extent or another.

Thank you very much for your response. I left a message with your office to contact me and left my phone number. I am now seeking legal counsel. I finished my review comments on EQT's Addendum to their boilerplate Lease agreement. I also requested the Landman's run sheet, showing how much mineral rights I have on the 124 acre tract, but have not yet received it. I have a copy of the tax map showing the 124 acre subject tract in the Grant District, Wetzel County, as well as copies of the two wills of my two most immediate ancestors, showing my percentage of inheritance. However, the Landman maintains that there are other wills that further minimize these percentages, which I haven't yet seen. I now prefer everything to be in writing with EQT, although the Landman wants me to submit my review comments via email, even though he hasn't yet provided me his run sheet. His initial upfront signing bonus offer came in the initial letter, but is not discussed in the Addendum thereafter. This is also too low per acre anyway for Wetzel County. In essence you can see my need for legal guidance here.