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Permalink Reply by Ben Elmore on November 17, 2011 at 10:36

First, as a royalty owner, you are not to be charged with any costs of production (e.g., drilling and completion or other costs to get the hydrocarbons out of the ground), so make sure this is not what they are charging you for.  "Cost of treating the oil/gas" is a post-production cost.  You are charged with your share of post-production costs (e.g., compression, treating, transportation, etc..).  With that in mind, are you saying the offer is 1/4 royalty with an express clause that you will be charged 25% for post-production costs?  Or are saying the offer is a 1/4 royalty and you will be charged your proportionate share of post-production costs versus a 22.5% royalty with no charges for post-production costs?  If that's the case, I would suggest you take the 22.5% because the costs can often times exceed the 2.5% you are giving up.  Just make sure your cost-free language is specific and airtight.  Others on this site may have different opinions.