The Landman says that "We just think that it is fair to pay your share of costs to get the gas to market."

Oil and Gas Leasing Help
1

So, what do you say to that?

First, by saying that "We just think that it is fair..." he is setting you up for any response as being "unfair." Nobody wants to be unfair, right?

Second, let's consider the following:

1. The gas, 100% of it, will be sold.

2. To do that, the Operator will have to pay for collection lines and transmission lines to get the product to the sales line.

3. To sell the gas, it will need to be dehydrated, separated and probably an amine unit to make the gas marketable to the buyer.

4. Might have to put in a compressor and a hot tap in the sales line.

ALL OF THESE COSTS WILL BE INCURRED WHETHER YOU AGREE TO "SPLIT COSTS" OR NOT.

ALSO - let's say you own all the minerals and leased for a 20% royalty.

SO, they are asking you to pay for 20% of the costs that they incur to market their share of gas.

The operator gets to buy or rent equipment and have personnel on hand to monitor its progress, whether you are paying or not. It is a sunk cost for him to get his share of gas to market.

The operator gets 100% of the tax advantages, D&D and the like.

So, what is the real cost of the operator to market your share of the gas?

It is an incremental cost. Certainly not 20%. A few dollars here and there for diesel or gas to run the equipment.

I really wish some wise owl would come up with the incremental cost of the incremental 20% of production, which, in the 2nd year on conventional wells, you have already lost anyway.

There are some so-called managers on this board who actually think that not sharing all post production costs are somehow fair.

Ask the landman if it is fair to be charged with 20% of the costs, with tax incentives to the operator, for MAYBE a 2% incremental cost to move the gas. Ask the landman to find out the incremental cost for you on the yet to be drilled well and you might consider sharing on that basis, as a partner, so that you get the tax breaks as well.

Watch the look on his face.

2

Buddy,

The operator should plan ahead. If it is not affordable, then he should not have invested in the play!

Tom

3

The question to me a mineral owner is, what happens to the 80% and to say generally in the recent past the mineral owner only gets 15%. The problem is that landman etc generally will find every way possible to charge to the mineral owner. I think if they would be honest it would not be so bad. I hope/and probably will get 25% thus allowing me to pay a little more of the costs. Thank you

4

I believe it was mentioned in another similar thread, that if the mineral owner should take on part of the expenses in the modern era, then the Working Interest of the operator should be reduced from 75%.

And the last thing I remember that stuck out from this issue, was the fact that if the lease offer is not good, sometimes the minerals are better to not be produced until a sufficient lease offer is reached.

Thank you for the wisdom and nice piece of bargaining power regarding costs Buddy!

5

Amen!

6

I think it all boils down to who spends money. The working interest spends money, the lessor/mineral owner should not. The lessor has a right to expect a turn key operation in return for what they give up.

If I leased timber, the lessee would not come to me and say here is a bill for your part of the fuel to haul the timber out and if he did, I would say that I gave at the office, about the time I distinctly recall executing a lease in someones favor.

Mineral owners are not greedy, they are the most generous people I know, conveying 100% of their oil and gas rights for 1% of their value, sometimes a little more and often a lot less. Many throw in easements or use of their water for free! How unfair could it possibly be to let the lessor keep his royalty untouched by anything but taxes?