I posted this under a general discussion earlier and I thought I'd post it. I just received a lease for my mineral rights in 158 R93 Sections 28 and 29 and it has the following language for royalties. I have a few questions.
3. In consideration of the premises the said Lessee covenants and agrees:
1st. To deliver to the credit of Lessor, free of cost, in the pipe line to which Lessee may connect wells on said land, the equal one-eight (1/8th) part of all oil produced and saved from the leased premises.
2nd. To pay lessor one-eight (1/8th) of the gross proceeds each year, payable quarterly, for the gas from each well, where gas only is found, while the same is being used off the premises, and if used in the manufacture of gasoline a royalty of one-eight (1/8th), payable monthly at the prevailing market rate for gas.
3rd. To . pay Lessor for gas produced from any oil well and used off the premises or in the manufacture of gasoline or any other product a royalty of one-eight (1/8th) of the proceeds, at the mouth of the well, payable monthly at the prevailing market rate.
What does "free of cost" mean? Does it mean that the royalty will be paid before the Lessee deducts the costs? Or does it mean they can deduct costs?
I have a lease in Burke County that pays the royalty based on the mouth of the well. This one says "in the pipe line". What is the difference?
Is there anything glaring in the royalty language that would be problem for me?
There are no other references to post-production costs or market enhancement clause in the lease.
Also, Article 14 states that Lessor will hereby warrants and agrees to defend the title to the lands herein descried. I don't own the land, just the mineral rights. Should I ask for this article to be removed?
1. There's no need to sign a 1/8 royalty in ND. I would ask for at least 3/16 if not 20%.
2. You should strike the warranty language. That's usually a freebie.
3. Free of costs means that you won't bare any of the costs. Ordinarily costs are most important to consider with regard to gas (compression, dehydration, etc.). The gas section doesn't specify that it is free of costs. Somebody else could probably opine on whether it needs to affirmatively state costs may be deducted in order for the operator to deduct costs.
4. The off premises language seems to suggest they could use gas on the well site to run equipment without paying for it. Whether that's consequential as a practical matter, I don't know.
Janis, of the wells near you, it looks like Oasis is at least open to drilling multi-well units while Hess Bakken Investments appears to be "one and done" drill one well and then 6 years later, still no more. I think they are storing oil in the ground, which might pay off for you in the long run but the premise behind a lease is that you want your minerals produced.
Thanks, Jeff. The royalty is actually much higher and was amended in the contract as the language above was boiler plate.
Should I strike the entire Article 14 Warranty Clause? There are several other articles about what the Lessee will do for the land owner but it is to the land owner's advantage and I figured it gave me protection to have the Lessee's obligations in the lease. But the Warranty Clause asks me to do something I have no ability to do.
Thanks for the explanation on "free of costs". I thought that was what it meant but didn't just want to assume.
The use of gas seems to be normal in some of the older leases my mother signed. We have one well in Burke County (Continental) and that lease had the same language. The gas royalties are rather small.
Jeff B said:
A couple of things:
1. There's no need to sign a 1/8 royalty in ND. I would ask for at least 3/16 if not 20%.
2. You should strike the warranty language. That's usually a freebie.
3. Free of costs means that you won't bare any of the costs. Ordinarily costs are most important to consider with regard to gas (compression, dehydration, etc.). The gas section doesn't specify that it is free of costs. Somebody else could probably opine on whether it needs to affirmatively state costs may be deducted in order for the operator to deduct costs.
4. The off premises language seems to suggest they could use gas on the well site to run equipment without paying for it. Whether that's consequential as a practical matter, I don't know.
R W, yest we re pleased that the Lessee is Oasis based on what we have seen in 158 92. They appear to be drilling more than one well per spacing unit. I guess Hess went through in 2008 and 2009 and offered 8 year leases for a lot of the rights in our area. I understand that Hess hasn't drilled a well since 2009 and it is low producing.
We have a lease in Burke County with Continental. They have drilled one well on each spacing unit but they don't seem to drill more than one well. Although they said they could put in up to 14 wells in a 1280 spacing unit. r w kennedy said:
Janis, of the wells near you, it looks like Oasis is at least open to drilling multi-well units while Hess Bakken Investments appears to be "one and done" drill one well and then 6 years later, still no more. I think they are storing oil in the ground, which might pay off for you in the long run but the premise behind a lease is that you want your minerals produced.