I am feeling more confused than usual. I have seen many posts concerning No-Deduct Royalty changes to the usual boilerplate royalty language for Oil and Gas leases. First person we paid to help us revise our lease could not complete for personal reasons. The second person we have hired has changed most of the items as we asked, but tells me that there is zero chance the oil co.( the new Norwegian player that purchased Brigham Oil) will agree to no post production/transportation deducts from the Royalty payments. I am looking to verify if anyone on this forum has negotiated a true no deduct royalty clause in Montana with this company or others, or is this a "pipe dream"? I can't write this language myself, but am wondering if it is worth going to a third party or am I wasting my time? Everything else seems to be covered, but obviously the royalty language is key; on the docket for drilling this year. I would appreciate any input.Thanks in advance.
Mr. Williams,
Joel's language is good; simple, broad enough and shows clear intent. But, it must be read in conjunction with the location of volume measurement and product price determination to have practical and confirming application to lessor payment determination. Also, have your lawyer explain your rights to recovery of underpaid royalties through the default provisions of your lease. You may be shocked to learn that you can win a battle and lose the war.
Royalty amount paid is at the heart of the matter for the operator. The operator must discount the royalty paid out as much as possible as it has a direct bearing on the internal rate of return for each well. Investors and banks are most concerned about the discounted cash flow rate of return so then, are the operators. Lessors must decide if they want a royalty that is calculated from information that can be confirmed or a royalty that is under the nebulous control of the operator's bookkeepers.
You have a couple of good alternatives to Stat Oil's lease terms that will protect your royalty from arbitrary discount. Especially if yo have large acreage in their unit. Just don't look at the "no deduct royalty clause" with blinder's on. You have a few months experience in leasing, the Exploration companies have decades.
Any update on this; did Statoil accept any form of a "No deduct" lease??