Working with Antero on leasing our very small net acres in mineral rights (Gross Acres 37 and Net 0.08326). Currently we have agreed upon 18% of royalties w/ $500 bonus, but we are stuck on the royalty clause. I asked for the royalty at the third party sale and not responsible for post production cost. (based in a current lease we have with a different company on different property).
He came back with the 2 options below. Can someone explain these to me?
-
Gross Proceeds Clause Lessee shall pay Lessor a royalty on gas at the agreed upon royalty rate based on the value of the unprocessed gas produced from each and every well on the Leased Premises, or on lands pooled or unitized therewith, calculated by multiplying (i) the MMbtu equivalent of the gross volume of gas metered at or near the wellhead in a given calendar month and (ii) the first of the month index price for Eastern Gas-South, or a successor publication (the “Index Price”). Lessor and Lessee agree that the gas royalty is being calculated prior to processing and extraction of natural gas liquids or other byproducts from the gas stream and that no additional royalty is due for the value, if any, of natural gas liquids or other byproducts contained in the gas stream. It is further agreed between Lessor and Lessee that all royalties accruing to the Lessor under this Lease shall be made without deduction, directly or indirectly, for the cost of drilling, testing, completing, producing, gathering, transporting, dehydrating, separating, stabilizing, processing, and marketing the oil and/or gas produced hereunder. Lessor agrees, however, that Lessee may deduct from such royalty payments Lessor’s same proportionate share of all production, petroleum excise and severance taxes. In the event the Index Price is not available at any time or for any reason, Lessee may select, in good faith and in a commercially reasonable manner, a replacement monthly index price determined by Lessee to reflect sales to unaffiliated third-party purchasers at locations in the geographic area in which the Leased Premises are located.
-
Wellhead Royalty – No Deductions It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, royalties payable on gas shall be based upon Lessor’s proportionate share of the gas produced from the Leased Premises at the royalty rate provided herein and is calculated by multiplying the (i) MMBtu content of the gas produced from the Leased Premises, measured by a meter at or near the wellhead, by (ii) Lessee’s weighted average sales price for gas sold from the same field during the given calendar month (“WASP”) free and clear of all costs or deductions for exploration, drilling, development, operation, production, separating, treating, dehydrating, gathering, storing, compressing, transporting and marketing such gas. For the avoidance of doubt, Lessor and Lessee expressly agree that the royalty is calculated based on the MMBtu content of the gas measured prior to processing and fractionation and Lessor will not receive an additional payment for any natural gas liquids extracted, processed, and created from the gas produced from the Leased Premises, if any.
Thanks in advance Kennedy