I am a partial non-participating royalty owner of 43 acres in Gonzales County Texas in mainly the oil part of the Eagle Ford Shale area. I would appreciate an interpretation of the following royalty clauses:
“All royalties accruing under the lease shall be without deduction for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, and otherwise making the oil, gas, and leased substances produced hereunder for the sale or use. Lessors shall bear and pay its proportionate share of all applicable taxes”.
1) Does this clause include no fees for the lessee (+ royalty owners) for transportation and marketable of said product?
2) Does all applicable taxes include income tax, county and Severance taxes. Are there other taxes?
Second Clause:
“On any gas processed by Lessee for the recovery of gasoline or other liquid hydrocarbons, computation for the payment of royalties on all processed gas, shall be computed in the following manner: (1) All royalties due herein shall be based on 20% of 100% of the total production of residue gas attributable to gas produced from this lease, and 20% of that percent accruing to the Lessee of the total plant production of liquid hydrocarbons attributable to the gas produced from the lease…”.
1) Is Gas accumulated with oil production sold like natural gas or is it all processed for the recovery of gasoline/liquid hydrocarbons?
Thanks for your help…
- Bill
Dear Mr. Murrell,
You are asking for a legal interpretation and for that reason, you should ask these questions to an attorney.
I can give you my interpretation from a business context, not legal.
1.1. Under the language of this clause, it appears that reasonable transportation fees are chargeable to the royalty interest.
1.2. Applicable taxes would include the taxes you mention plus any taxes that may occur, such as windfall profits tax.
2.1 The natural gas COULD be used in the recovery of other hydrocarbons, such as using natural gas or casinghead gas to run a compressor or dehydrator. Otherwise, the casinghead or residual gas would be sold through normal pipeline markets.
Items in the royalty clause that were not quoted that COULD have an influence on my business interpretation would be where market value is established, for example, at the wellhead or some place else and is royalty due on all gas produced and saved, produced and sold, or simply produced?
Mr. Cotten,
Thank you for your interpretation!
Bill
Buddy Cotten said:
Dear Mr. Murrell,
You are asking for a legal interpretation and for that reason, you should ask these questions to an attorney.
I can give you my interpretation from a business context, not legal.
1.1. Under the language of this clause, it appears that reasonable transportation fees are chargeable to the royalty interest.
1.2. Applicable taxes would include the taxes you mention plus any taxes that may occur, such as windfall profits tax.
2.1 The natural gas COULD be used in the recovery of other hydrocarbons, such as using natural gas or casinghead gas to run a compressor or dehydrator. Otherwise, the casinghead or residual gas would be sold through normal pipeline markets.
Items in the royalty clause that were not quoted that COULD have an influence on my business interpretation would be where market value is established, for example, at the wellhead or some place else and is royalty due on all gas produced and saved, produced and sold, or simply produced?
Best,
Buddy Cotten
www.cottenoilproperties.comCo-Director, District 3, NARO-TX