Replies to This Discussion

Permalink Reply by Robert Griffin R on January 25, 2011 at 4:20

Polly,

I am currently evaluating a proposed lease from Chesapeake for a well that was spud this month in DeSoto Parish, LA (S20-T15N-R14W).  Could you please post an example of the AR lease clause you mentioned regarding royalty cost deductions.

"Some lessors in Columbia County Ar have included a clause in their lease giving them or their representative the right to inspect the records of Lessee pertaining to the production and disposition of the oil and gas."

Thanks, Robert

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Permalink Reply by Polly Ann Foote on January 25, 2011 at 9:42

Robert
The applicable clause reads as follows:
Upon prior written notice given to Lessee, Lessor, or Lessor's designated representative, shall have the right to inspect, at reasonable times, and during the regular office hours of Lessee, the records of Lessee pertaining to the production of oil or gas from Leased Premises, or lands pooled therewith, or operation pertaining thereto and the disposition of such oil or gas, at Lessee's office where such records are normally kept.

There is another clause limiting post production costs. It is as follows: Lessee agrees that all royalties accruing to Lessor under this lease, shall be without deduction for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and otherwise making the oil, gas and other products produced hereunder ready for sale of use. Of course the leasing companies do not like these clauses at all, and I read where one state (I think it was Texas) allowed some post production costs in spite of the lease saying none could be deducted. There is a debate going on as to what oil/gas companies should be allowed to charge the royalty owner.

On another note, I have recently received an Arkansas oil & gas lease which authorizes the payment of $1.00 per ton for sulfur. I do not know whether your lease contains such a statement. However, sulfur is selling for $145-$160 a ton and at the end of 2007 it sold for $600/ton. I would like to know if there is some justification for such low return for lessor (1/145 = .006897)

I wish we could all share information on these leases as they are not written for our benefit.

p

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Permalink Reply by Robert Griffin R on January 26, 2011 at 3:56

Polly,

Thank you for your time and contribution to this discussion.  Your note about the $1.00 per ton price for sulfur is exactly the case in my proposed Chesapeake lease.

 

"(c) on all other minerals mined and marketed, one-fourth (1/4th), either in kind or value at a well or mine, at Lessee's election, except that on sulfur the royalty shall be one dollar ($1.00) per long ton." 

 

My guess is this is the wording in many current and active Chesapeake leases.  Could anyone comment of this wording in the clause: "either in kind or value at a well or mine, at Lessee's election"?

 

Thanks again, Robert

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Permalink Reply by Robert Griffin R on January 26, 2011 at 5:07

FYI, price history info on sulfur...

"Sulfur Statistics and Information"

http://minerals.usgs.gov/minerals/pubs/commodity/sulfur/

http://minerals.usgs.gov/minerals/pubs/commodity/sulfur/mcs-2011-su...

The average price per ton for the last 5 years was about $73 with a high of $245 in 2008 and a low of $1.68 in 2008.

 

 

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Permalink Reply by Polly Ann Foote on January 26, 2011 at 6:35

I cannot find the website where I got that earlier info, but on the USGS website it says sulfur was $30/ton early 2010, $130/ton in May, and $150/ton in November. Also said export prices were a little higher.  Obviously the price is going to fluctuate with the economy as was evidenced by the $600 high. These leases can run for many years. Thus I think lessors should be paid a percentage for their sulfur. 

p

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Permalink Reply by Jan Childress on January 26, 2011 at 3:09

Replying to a few comments:

1) Here are the IRS instructions for Form 1099-MISC that O&G payers must comply with: 

"Enter gross royalty payments (or similar amounts) of $10 or more. Report royalties from oil, gas, or other mineral properties before reduction for severance and other taxes that may have been withheld and paid. Do not include surface royalties. They should be reported in box 1. Do not report oil or gas payments for a working interest in box 2; report payments for working interests in box 7. Do not report timber royalties made under a pay-as-cut contract; report these timber royalties on Form 1099-S, Proceeds From Real Estate Transactions."

2)  I think you all are talking about LA but in Texas the RRC Section 91.502 requires the following be reported with every payment: Property I.D.; Sales month & year; Volume sold; Price per barrel or Mdf; Taxes and other deductions; net value; owner decimal interest; owner gross value; owner net value.

3) Someone mentioned never knowing if royalty checks are correct.  EVERYONE should check this out and yes it's possible. If I can do it ANYONE can. See http://www.texasattorneyblog.com/2009/05/have_a_texas_oil_and_gas_l...

for a great explanation on how to do it. We were underpaid 20% over the past four years. Thanks to this article and the generous advice on this site we caught it before the 4 year statute expires in March 2011, allowing us to file suit if we don't get it resolved before then.  

 

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Permalink Reply by Linda Whatley on January 26, 2011 at 3:57

Jan,

 

Yes, we know it's possible to verify the accuracy of our royalty checks.  The only thing is some of us don't have all the information necesary to do that (i.e., expenses, taxes, etc.)  Chesapeake is one of the companies that does not provide enough information.

 

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Permalink Reply by Jan Childress on January 26, 2011 at 5:10

I'm sorry I thought you were talking about computing your royalty interest percentage.

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Permalink Reply by Linda Whatley on January 26, 2011 at 5:20

That's okay Jan......  And you know what??  Sometimes the Division Order doesn't provide enough information to verify anything either.  I received one that didn't include the unit size, nor the amount of my acreage.  The unit size was under 640 acres, which reduced my total acreage, but I didn't know that!.....I had to call the operator to find out what information they used before I could verify the accuracy of the DO.   

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Permalink Reply by Jan Childress on January 27, 2011 at 4:51

Yeah, the Division Order wasn't much help in verifying the royalty interest percentage. In fact I couldn't even find mine when I was doing my verification. It was the check stub and Unit Declaration survey map that gave me what I needed.  I just love a good mystery but without the folks on this site to turn to I'm not sure I would have ever uncovered the error.  I guess I'd better make a donation when we get our back royalties. :)

 

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Permalink Reply by Linda Whatley on January 27, 2011 at 7:52

By all means do make a donation to GHS.   We are so lucky to have this site..........  Thanks Keith!!!

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Permalink Reply by Jan Childress on January 30, 2011 at 4:54

Time to donate. Just got the check from Sonerra with our back royalties. Yay!!

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