Replies to This Discussion

Permalink Reply by Henry on December 22, 2010 at 8:59

Shayne,

These are very important, so you need to make sure the language is right.  You ought to consider checking with a lawyer, if you are at all uncertain.

 

Let's start with cost-free royalties.  This means that your driller may not deduct the cost of marketing, transportation, compression, dehydration, treatment, etc. from the price at which he sells your gas.  In other words, if he sells your gas for $4.00, you get $4.00 (minus severance tax).  If your lease allows him to deduct all those expenses, it can amount to anywhere between 25 - 75 cents deduction from that $4.00.  Some drillers seem to charge more than others.

 

A vertical pugh clause says this:  The driller has the right to drill to any depth during the primary term.  But, once the primary term is over, he is not entitled to any depths below that.  Some pugh clauses also restrict the right of the driller to any depths above that also.

 

A horizontal pugh clause says that if only part of your land ends up in a drilling unit, then only that land can be held by the lease.  The remaining land is released, and not held by production at the end of the primary term. 

 

Again, if you are at all uncertain about all of this, spend the $500 to have a good O&G lawyer review the language and make sure you have it right.  It is worth it.

Permalink Reply by Shayne S on December 22, 2010 at 9:04

thank you very much, that is what I thought, I am gathering info to tell the rest of the family, now on to the O&G attorney