Sharing of Gas Sale Enhancements Costs

Oil and Gas Leasing Help
1

An oil company is insisting on the following language in a lease. I've tried to limit our exposure to sharing costs that we have no control over.

Is the following language common in a oil/gas lease?

  • Lessor’s royalty shall not bear or be charged with, directly or indirectly, any cost or expenses incurred by Lessee for exploration, drilling, completing, equipping, storing, separation by mechanical means, or development of the Leased Premises; however, post-production costs incurred that result in making possible the sale of gas and/or enhancing the value of the marketable oil, gas or their products to receive a better net price may be deducted from Lessors share of production so long as they are based on Lessees actual costs and do not include costs of recompletions, work-oversworkovers or pipeline construction and maintenance. However, in no event shall Lessor receive a price that is less than or more than the price received by Lessee.

Many Thanks,

M. D. Wood

2

Hey, MD -

Most, if not all of the companies try to burden the royalty owners with what they (the companies) define as the royalty owner's "fair share" of post production costs.

Another pesky little issue to watch for is when a company "sells" the product to itself at a rate below market value and then sells the product to the true market through it's "Marketing Group" - effectively clipping the royalty owner out of a substantial amount of their rightful income.

Unfortunately, both practices are apparently somehow legal, unless the issues are effectively addressed in the provisions of the original Oil and Gas Lease.

I have a printout from a luncheon I attended a few years ago where an Attorney, Joseph B. C. Fitzsimons, gave a talk on "The Top Ten Issues Land And Mineral Owners Should Include In Their Oil and Gas Lease".

I believe the provisions he sets out under his Issue No 2 - Royalty Valuation would adequately address both, but am having trouble uploading it for you. If you will send me your personal email address, I will send it that way.

I do not know Mr. Fitzsimons personally, but very much enjoyed his talk. He is with the firm Uhl, Fitzsimons & Jewett in San Antonio, Texas.

Hope this helps -

Charles

Charles Emery Tooke III

Certified Professional Landman

3

Thank you, Charles. I appreciate you feedback and all your time. I’ll send me email to you.

4



Hi Charles,

I wonder if you would happen to have all ten issues that you could send a man who is trying to learn something about the oil and gas business? Even a fellow Ft. Worth resident, born and raised.

You have shared a lot of good info in this forum and I would like to say it is very much appreciated. Thanks for what you do for the forum,

Wes Luke

5

I would appreciate any information on the verbiage in clauses to prevent deductions and "enhancement" marketing costs as well...thanks lizziefishin@comcast.net