I have a standard mlbath lease with a few addendum items. I have recently started receiving a small check on a cotton valley well. For the first time, I have been charged transportation charges. Is this standard or can I challenge it?
Are the charges addressed by the lease? I realize you have said it is a standard form but read over it anyway. I can't tell you how many STANDARD OGML there are out there. If not addressed in your addendum or lease seek legal advice as to your options. Stay away from the ambulance chasers and beware of the guy that wants royalty in exchange for winning the case.
I think an ambulance just went by if you run I bet you can catch it.
From Bath Form Louisiana Spec. 14-BR1-2A-NL Paid up R4/96
4. The royalties to be paid by Lessee are: (a) on oil, and other hydrocarbons which are produced at the well in liquid form by ordinary production methods, one-eighth of that produced and saved from said land, same to be delivered at the wells or to the credit of Lessor in the pipe line to which the wells may be connected; Lessor's interest in either case to bear its proportion of any expenses for treating the oil to make it marketable as crude; Lessee may from time to time purchase any royalty oil or other liquid hydrocarbons in its possession, paying the market price therefor prevailing for the field where produced on the date of purchase; (b) on gas, including casinghead gas, or other gaseous substance produced from said land and sold or used off the premises or for the extraction of gasoline or other products therefrom, the market value at the well of one-eighth of the gas so sold or used, provided that on gas sold at the wells the royalty shall be one-eighth of the amount realized from such sale; such gas, casinghead gas, residue gas, or gas of any other nature or description whatsoever, as may be disposed of for no consideration to Lessee, either through unavoidable waste or leakage, or in order to recover oil or other liquid hydrocarbons, or returned to the ground, shall not be deemed to have been sold or used either on or off the premises within the meaning of this paragraph 4 hereof; (c ) on all other minerals mined and marketed, one-eighth, either in kind or value at the well or mine, at Lessee's election, except that on sulphur the royalty shall be one dollar ($1.00) per long ton.
Fred, to throw a silver lining around the grey clouds. You get to deduct those costs from the taxable income from your royalties. So you don't pay taxes on them at tax time. Make sure you keeps those statements to bring with your 1099 at the end of the year. That's where your tax person will get your deductions.
Be careful; most companies will net out the deductions automatically when preparing their 1099s (ie. your net royalty proceeds (less deductions) is what is reported as "royalty income". In that situation, if one subtracted "deductions", they would in effect be claiming them twice.
"Quoted from wolf or Caliente now"
Assuming a true standard form (whatever that may be), probably no reference is made to transportation or gathering charges.
In Louisiana, a mineral royalty created by a mineral lease is defined as a no cost interest in production. But, that is arguably no production cost. The legal issue is then whether gathering or transportation costs are a "production cost." It is interesting that you comment that in the past, you were not charged transportation costs, but now you are. Some in the industry take the position that gathering within unit boundaries is a production cost and therefore not deductible from the royalty, but once the gathering lines transport off the unit boundaries towards and to a pipeline (whether intrastate or interstate), those off unit transportation charges are not a production cost and thus legitimately deductible from the royalty owner. Landowners, naturally, take a contrary position. The fact you weren't charged in the past is interesting. It would not do any harm that I can imagine to call the operator and ask why and on what basis this charge is for the first time now being deducted.
As exciting as this is, we know that we have a responsibility to do this thing correctly. After all, we want the farm to remain a place where the family can gather for another 80 years and beyond. This site was born out of these desires. Before we started this site, googling "shale' brought up little information. Certainly nothing that was useful as we negotiated a lease. Read More