In negotiating a mineral lease, which is better for the mineral owner -- to specify that royalties are to be paid on the price at the wellhead or pipeline or at the point of sale? I thought the wellhead price wouldn't include post-production, processing or transportation costs -- but something I read said that those are calculated into wellhead price. Thanks for any advice!
You need to specify the Market Value at the tailgate of the plant or point of sale, excluding all cost to make the gas/oil marketable, but more wording is needed. Consult a professional. If the wording is off by one word in a certain state then you lose out. Even if you have to pay or give up a portion of mineral interest, it will cost you less in the end with someone with knowledge in the oil and gas business.
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OK. Thanks!
Brian,
Thanks for that information.
Clint Liles
Vivian,
The objective of the mineral owner, is to be able to verify the unit revenue from production and the most convenient method is when the product changes ownership i.e., the pint of sale. That unit price is generally posted for the field based on a periodically published price with adjustments to quality after the product is tested. If the operator has the right to sell to an affiliate, the lease should include a price for calculation purposes that is the published field price or the price that would be realized in an arms-length transaction. Otherwise, the amount of the royalty percentage is of only academic interest.