Replies to This Discussion

Permalink Reply by Lew on September 25, 2013 at 6:21

Jo Ann,

CHK, and any other operator that knows what they are doing, will report the gross royalties paid to you on the 1099 form before any deductions are taken. You need that figure because that is what you use to calculate percentage depletion and the higher number gives you a larger depletion deduction. Also, that number is reported to the IRS and they may match that up with your return and send you a bill if you use a net number as gross income on your income tax return. However, any deductions that the operator takes from your money (severance taxes, compression, gathering, trucking, etc.) are income tax deductions against the gross income because they held that out of your check. Many operators (I don't know about CHK) will give you a gross number and a net amount paid number somewhere on your 1099 form. The amount in the royalty box on the 1099 will be the gross number. If they don't give you an expense total or a net number, you will have to calculate the amounts from your check stubs to get the deduction amounts.

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Permalink Reply by elizabeth person on September 25, 2013 at 8:20

Lew, you are right. For many years now, I keep up with all of my deductions in a notebook for all companies. I am in the habit of doing this each month after I received my royalty check so I don't have to do it at income tax time. It takes a bit of time, but worth it to me in the long run.   I make columns for each of the things that you have mentioned above: severance, compression, gathering, etc..

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Permalink Reply by Henry on September 24, 2013 at 6:23

Gross.  No deductions. (At least I think that's what I'm getting.)

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Permalink Reply by Andrew on September 24, 2013 at 8:36

If all that is being reported to you is net proceeds, then you would not make deductions for post-production costs but you can still take a deduction for depletion. If the gross price is reported you can report gross revenue but then itemize the deductions as well as the depletion. Your taxes from the royalty would be the same in either scenario, but itemizing the post-production cost deductions may be beneficial for your income taxes as a whole.

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Permalink Reply by 1kw6x71km1v37 on September 27, 2013 at 4:29

Technically, you cannot report expenses you do not incur, but must report to IRS any net well proceeds. Mathematically, it's all the same in the end. If an operator does report your gross well proceeds, and they all do, there is a provision in the IRS Agent Field Manual stating a Form 1099 MISC does not constitute proof of payment. It's mostly academic, but I suppose a rouge agent could stick you up for tax evasion for claiming unwarranted expenses, at least through the wringer stage, albeit this should be easily taken care of by filing an amended return.

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Permalink Reply by Dion Warr, CPL on September 24, 2013 at 17:16

Henry:

I don't know what to add here. I know that you have assembled enough data to fill a small pickup with paper from your inquiries and landowner submissions. So, you know the field discrepancies by operator as good as anybody. Other than the fact that long-term CEMI contracts are still in place, I can't rightly think of anything else off the top of my head. Eventually, CHK will grow tired of being paid less than market value for gas from a company not entirely owned by them anymore, and the goodwill from that purchase price will continue to erode from their revenues. At that point, your mother's realized price should(?) improve. I would hope.

Sorry if this got planted under the wrong post; I tried this from my cell phone.

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Permalink Reply by Ken Marx on September 27, 2013 at 10:56

Down here in Texas and Louisiana, we got an eyeful about how Chesapeake took advantage of landowners over the last several years especially in the North Texas/North Louisiana Haynesville Play. They were the ugly duckling of the industry (gave everyone a bad name). Looks like same 'old same 'old since Audrey was booted out. Unethical then unethical now

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Permalink Reply by Francis Mayo on September 27, 2013 at 12:36

The public face of Chesapeake is rapidly becoming a personality making Audrey look like your Granny's favorite preacher. If you think Audrey was bad, wait until Carl Ichan assumes even greater control. This corporate raider makes everyone else seem tame. Mineral owners will be squeezed harder. There will be no foreplay.

http://www.foxbusiness.com/industries/2013/08/19/chesapeake-shares-...

 

 http://nypost.com/2013/01/25/carl-icahn-and-bill-ackman-trade-insul...

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Permalink Reply by TL DS1 on September 28, 2013 at 4:24

I'm in one of those sections that EXCO bought from CHK. The first month's check was the same disappointment as CHK when it came to deductions. My lease states there can be no deductions for GTO (Gathering, transportation & other). I almost called but decided to wait till the next check.

The second check took none out and returned the deductions for the previous check. So freaking glad CHK sold out to EXCO.

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Permalink Reply by 1qead70mqm01c on September 28, 2013 at 6:49

Yes, there is a Santa Claus/e, and he doesn't leave a lump of coal unless your last name is McClendon. 

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Permalink Reply by w.r. frank on September 29, 2013 at 2:07

I sent you a friend request. You are lucky to be with XCO. Eliminate deductions and faster drill out!

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Permalink Reply by Henry on May 24, 2014 at 5:25

I thought I would update this discussion, and point out how CHK continues to obfuscate.  

My mom gets a check from CHK on a lease that does not have cost-free royalties.  For the month of February, CHK paid her $4.815 for her gas, and had deductions of $0.50.  Net price = $4.315.

I got my check from BHP on a lease that has cost-free royalties.  For the month of February, I got $5.57 for my gas.  This is $1.25 more than Mom got.

If you didn't know better, you'd think that CHK was really good on deductions -- only 50 cents.  But what you cannot figure out from the statement is that they are killing royalty owners on the price they give them for their gas.  It is way below market.

They haven't gotten any better.

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