Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on January 13, 2013 at 8:04

I provide answers to straight forward questions requiring little or no research free of charge.  "Friends" can send me emails and get private replies if they do not wish to put their business in open discussions.  I don't provide legal opinions or services.  I can offer a referral for legal assistance.

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Permalink Reply by adubu on January 13, 2013 at 14:56

Skip-- can you post a example of wording for lease that lessor ( or wording you would put in your personal lease)could use to get the best net price paid for their royalty mineral production Nat Gas or Oil/Condensate without deductions or so call "Royalty Free Clause"- so to prevent things like this from happening such as what CHK does----thanks understanding it's example only and should be approved by consult with lessor's attorney reviewing lease and writing all addendum but would give members ideal of what to ask for in negotiation--- understanding also operators may not accept it

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Permalink Reply by Skip Peel - Mineral Consultant on January 13, 2013 at 15:09

adubu, that's getting into the realm of legal advise.  I don't have any standard boiler plate language that addresses your concern.  I do have language along those lines in some custom leases but it's the intellectual property of the O&G attorney who drafted the leases.  Far be it from me to post his work product on a public website.  Also those custom leases are for Louisiana minerals and may not be germane for other states.

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Permalink Reply by adubu on January 13, 2013 at 15:21

Skip-- did not know leases are under "patent" laws -- how would lessor ever know if he got good language in their lease if did not have any knowledge of different ideals -- do oil&gas attorneys share ideals in their Journals or somewhere -- not all oil&gas attorney have same skills to negotiate as you I am sure have seen in your time -- this is good site for the member to learn -- that is one of reason I check into the site on regular time frame and reason I said your comment was example NOT LEGAL -- and hope one day production and leasing activity return around my minerals in Shelby county near Joaquin. I am VERY THANKFUL FOR ALL YOUR TIME AND COMMENTS TO SHARE YOUR KNOWLEDGE WITH THE MEMBERS ON THIS SITE ---THANKS AGAIN

Permalink Reply by adubu on January 14, 2013 at 8:58

skip--- can you please reply to above? What would you want in your personal lease--- I am not asking you to use some ones intellectual property. Just a generic ideal to give members a starting point ideal.--- Andrew  would you add your comments also for addition ideals.

Permalink Reply by Andrew on January 14, 2013 at 10:39

Adubu,

I share Skip's concern about about getting to close to giving "legal advice." Because every situation is different, a qualified lawyer really should be consulted when it comes to contract language, especially when it comes to language regarding royalty. There are literally entire books devoted to the subject, and even the most top-notch oil and gas attorneys can only make an educated guess as to what is going to work in some cases.

Permalink Reply by Mmcf/d on January 14, 2013 at 11:06

Thanks, when you said people need to get professional assistance with leasing matters I thought I'd ask if you're available as an Independent Landman since you are so well versed.  I'm not sure if your answer is yes or no, though.

Permalink Reply by Lerret on January 15, 2013 at 8:15

I would say that the legislators should get involved to DEFINE A ROYALTY and to DEFINE THE POINT OF "MARKET VALUE"

First, a royalty should be FREE AND CLEAR OF ANY EXPENSES. Post production expenses should be OUTLAWED period. They have no place in a ROYALTY interest. You can bet all those Overriding Royalty interests created for the head cheese at the gas company do not pay any post-production expenses.

Nat Gas Market Price should be the wellhead price before any deductions are made and that price should revert to a regional average when the operator has ties to the first buyer. We have the crazy system where the operator's own subsidiary sets prices, then they take a huge whack off the top.  I have seen any number of post-production expenses running 40% or more

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Permalink Reply by Skip Peel - Mineral Consultant on January 15, 2013 at 8:36

Few state legislators have the knowledge and experience to craft legislation reforming the Louisiana Mineral Code.  Legislators generally offer legislation crafted by others.  Those others are generally supporters or constituents of the legislator sponsoring the bill.  Here is a list of legislation from the last regular session of the legislature. Click on the blue text to see the complete bill.

Acts of the 2012 Regular Session of the Louisiana Legislature relating to Oil and Gas

Act 702 — Expropriation Procedures- Act 702 revises the procedures for expropriation of property rights for the construction, maintenance, and operation of pipelines.

Act 743 — Ultra Deep Units – Act 743 grants the Office of Conservation authority to create units up to 9000 acres in size for “structures” that are encountered at a minimum depth of 22,0000 feet.

Act 743 — Risk Fee Statute – Act 743 also amends the Risk Fee Statute to provide that the operator generally will have to pay a non-participating lessee’s lease royalty and overriding royalty obligations during the operator’s recovery of the risk fee.

Act 754 — Legacy litigation – Act 754 enacts certain reforms relating to “legacy litigation” in which plaintiffs allege that their land has been contaminated by past oil and gas activities.  For example, Act 754 provides for the entry of case management orders to manage legacy litigation cases, and allows defendants to admit liability for the remediation or clean-up of property, without that admission being deemed an admission of liability for claims other than for clean-up.

Act 779 — Legacy Litigation -  Act 779 enacts certain other reforms relating to legacy litigation.  For example, the legislation provides that litigants may subpoena Department of Natural Resources employees who were involved in formulation of a “feasible plan.”  The legislation also allows a defendant to request a hearing at which a plaintiff must present some prima facie evidence to support its claims, and if a plaintiff fails to do so, the defenaant is dismissed without prejudice.

Act 795 — Pre-Entry Notice to Surface Owners – Act 795 provides that operators generally will be required to give a surface owner 30 days notice prior to the operator entering land for drilling activities, unless the surface owner has a contract with the operator.

Act 812 — Mandatory Disclosure of Fracturing Fluid Composition – Act 812 directs the Office of Conservation to draft regulations requiring operators to disclose certain information about hydraulic fracturing fluids on a well-by-well basis.  The information that generally must be disclosed includes the volume of fracturing fluid, the type of base fluid, and the identity of each additive, though operators need not disclose the identity of any compound that is a trade secret.  The information that is disclosed is made available to the public.

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Permalink Reply by Skip Peel - Mineral Consultant on January 15, 2013 at 9:07

After reviewing the individual acts listed above, determine which were sponsored by a representative or senator who appears to be pro-mineral owner.  Then use the following links to identify that specific legislator and send him/her a letter expressing the need for comprehensive review and amending of the Mineral Code.  If you have a particular complaint, be specific.  Also I suggest that you be respectful and succinct in your communication.  Good Luck.

http://house.louisiana.gov/H_Reps/H_Reps_FullInfo.asp

http://senate.la.gov/Senators/offices.asp

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Permalink Reply by HBP on January 15, 2013 at 9:06

Your subsidiary point is well founded. 

I just want to mention something about when you use the phrase "wellhead price before any deductions are made".  We have to remember that, for the most part, there is no market at the wellhead for gas so "wellhead prices" are calculated through different means, a popular one being to net back the expenses from the initial sales point back to the wellhead to get the presumed wellhead price.  Now, each variable that goes into that (first sales price, and then each deduct) is provided by the company, so there is a lot of room for manipulation/mistake and there are hundreds of lawsuits throughout the 5th circuit states to prove it.

I'm not sure I agree that outlawing all deducts will work.  But lets say you could do it for all leases signed from today forward in this State (since it could not be retroactive) , then operators would immediately drop their royalty burdens on new leases to adjust for the economics of shouldering all post production costs.  Then again, maybe its better to get 3/16ths and no deducts than to get 1/4 and 30-40% deducts - but only if it stays at 30-40% deducts, which it won't at higher prices since many of the fixed costs are what cause high deduct % in a low price environment.     

The problem to me is not that a lessee can charge post production on a supposed arms length price - it is that they can do so with little or no sunlight on their books if you had an inquiry.  There are very few transactions in America where companies do not have to show their math when it involves your money.   

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Permalink Reply by Andrew on January 11, 2013 at 2:06

True, most ordinary people were not as educated when they signed their leases as they may be today, but I know more than a few career landmen who signed the same Bath lease with no clauses that the laymen did. But with an issue as complicated as mineral lease negotiation, the best anyone can hope for is to learn from their mistakes so they do better in the future than they did in the past.

And with all the lessons learned by HS owners before the days of GHS, I don't envy the outfit that attempts the next major lease takeoff in the Ark-La-Tex, even if it's 50 years from now.

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