Treating and Gathering Deductions not in the Lease, but being deducted from royalty checks

If treating and gathering are not mentioned in the lease, what tells me that they can deduct it from your royalty checks?   Section 4b of the lease states the following.   

 

The royalties to be paid by Lessee are: (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 there from, 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.

 

I was mislead about the deductions and was not told upfront about these deductions. 
As a landowner,  it appears that they silently wrote it hidden and misunderstood.  Even though there is nothing that states the lessor cost or expenses. 

Views: 3944

Reply to This

Replies to This Discussion

Under Texas law, it is an inherent right of the operator to charge the royalty owner with their share of post-production costs, including treating, gathering and other costs.  There is no oblgiation for them to tell you those will be deducted before you sign a lease.  However, if they tell you those are not going to be charged, then you might have an issue to bring up.  As a royalty owner in Texas, the law imparts upon you knowledge (or the duty to do your own due diligence to find out) that such post-production costs are going to be charged to you.

The well is in Louisiana, not Texas. 
I don't believe LA law is any different on this topic. 

I'm with Ben, it is similar or the same in Louisiana and has traditionally been interpreted by the courts that way.  They can spread certain costs from the well to market unless expressly (and properly) excluded in the lease terms.  If there are actual fraud issues where the deductions were explicitly said to have been excluded by those signing you - that is a different issue but still an uphill battle depending on evidence.

 

And note that it is not really an "added term" to the lease, it is an interpretation of the language in most basic forms.  I agree that deductions take a bite out of the money on a check stub, but "qualifying" deductions may be a fact of life if they aren't properly excluded.

This is standard in any state that I have worked.  This includes, Oklahoma, Texas, Louisiana, Arkansas, New Mexico and Colorado.
This is incorrect.  There are significant differences in these states.  Oklahoma allows for fewer post-production deductions than Texas.  This issue is a matter of state law, and it does vary.  As others have suggested, there is no specific disclosure of royalty deductions.  In my experience, operators deduct everything without regard to the limitations in the applicable state law.  It is up to the mineral owner/lessor to (i) know the law, and (ii) challenge the deductions.  Since they are generally hidden or at least hard to find on check stubs, complaints are rare.  Every so often someone wins a lawsuit for improper deductions (Newfield was a recent one, Southwestern Energy got caught years ago, BP-Amoco, and others come to mind).  These situations only arose because a large owner had the resources to discover the improprities, hold the operator accountable, and hire a good lawyer.  The little guy rarely notices -- which is how the system is designed.
Would you mind referencing the provisionin the code for louisiana?
Baron: I don't own any minerals in LA (due to prescription).  I'll check my files tomorrow and send if I have it.  Oklahoma, Texas and Arkansas are easily found with a Google search.

Ok John, point taken, you can hire a lawyer and fight the oil and gas companies.  My point is, that the standard post production charges are charged unless exempted per the lease.  It is not a standard exemption.  Yes, in Oklahoma, certain fees are not allowed to be charged to the royalty owner.  More and more we are seeing the "cost-free" leases, this is a selling point to many because the bonus prices have declined. 

 

Baron - read http://dnr.louisiana.gov/assets/OMR/media/2011/pdf/SR_Report_Instru... for information on Louisiana.

DO Analyst - we're in agreement.  Producers almost always deduct every possible expense paying little regard to the specific state laws.  The reason is precisely what we're discussing: most royalty owners lack the ability to discover it or the means to challenge it.  As I have posted elsewhere, a similar situation exists with respect to the payment of interest on late payments of royalty.  All of the producing states have a statue requiring that royalty owners be compensated if royalty payments are made more than 60 days after the production month (the specifics might vary).  As a matter of policy, I know of NO companies that voluntarily pay interest (even though they are legally obligated to do so).  Every company pays it only when requested - most owners don't know they are entitled to interest and others don't know how to ask.

John,

 

I am very familiar with the regs on your link above.

They only apply to State and State Agency leases. They do not carry over to private minerals.

 

In louisiana, there has been a good deal of case law on this, I will dig up what I have when I get a chance, but in general the courts have normaly followed the belief of freedom of contract in accordance with the mineral code when it comes to leases. RS 31:3

 

In fact, the LA mineral code does not set a sixty day period, or any period whatsoever, but creates the requirment that a written request must be made, prior to filing for judicial damand for damages and/or dissolution of the lease. RS 31:137

 

I am extreemly  disturbed that someone who apparently holds the law in such high regard would spread the disinformation that you are. While I make no dispute on your claims in other states, I do dispute your claims about louisian a mineral law, which is where our topic here has been primarily centered.

 

In fact, the process for royalty payment disputes is clearly established by the mineral code, and for those who have been force pooled by the Office of Conservation, especially in the case of UMI, consenting WI and non-consent WI, the final athourity on well costs rests with the Commisioner. Although historically the Commisioner will deefer to the courts (I don't blame them)

 

I highly sugest reading a copy of the mineral code RS 30 and maybe the additional regualtory regs contained in  RS 30 before commenting further.

I don't appreciate having people challenge my knowledge of the law, much less my good intentions.  When you asked about Louisiana, I very clearly noted that I have no minerals there (due to prescription), and don't know the law there - which as you surely are aware is different than any other state.  In response to your request, I simply Googled to find what is on the net - and that is the link that I sent.  If it is not what you wanted, please do not attack me.  I humbly suggest you find someone who holds himself out as knowing something about Louisiana law.  If you are such as expert, as you wish to imply, then you give the information out - don't ask me.

I have been respectful to you, and appreciate that you appear to be employed in our industry - perhaps on the drilling side.  I would advise you to give me the same respect when it comes to royalty matters.  My desire here is only to help folks based upon more than 30 years as an industry lawyer and the owner of several thousand net mineral acres.  I do not claim to have every answer, but it appears that you do.  BTW: The Commissioner does not defer to the courts - the courts interpret thet law and the Commissioner must comply.

RSS

© 2022   Created by Keith Mauck (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service