Here is my situation. I have a property that was leased to Chesapeake in July 2008 with the following clause:
TRANSPORTATION CHARGES: It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all oil, gas or other proceeds accruing to the Lessor under this lease or by State law shall be without deduction, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas, and such other products produced hereunder to transform the product into marketable form; however, any such costs which result in enhancing the value of the marketable oi, gas or other products to receive a better price may be deducted from Lessor's share of production so long as they are based on Lessee's actual cost of such enhancements.
A well was put into production in December 2011, and from that time until January 2018 the royalty checks were without any deductions. Chesapeake sold the lease to Indigo MInerals, and beginning with January 2018 began to deduct for gathering, compression, and treating even though they were bound by the same lease language as Chesapeake. Chesapeake came back as the owner of the lease in February 2015, and to this day the deductions continue. (By the time Indigo assumed the lease in 2018, royalties were down around $100 per month and the deductions averaged 9%, so I didn't try to fight it. MY MISTAKE.)
Now a new well has been drilled, the royalties are much more substantial, and Expand has continued the deductions, but now those deductions are averaging 17% of the total payment. I have reached out to Expand through owner relations and received a reply from Kate Ferguson, Lead Land Analyst, who says the deductions are in line with the lease language due to "enhancements to the value" I am receiving. Yet they ignore the 6+ years they paid without deductions.
I would welcome advice as to how to proceed from here, especially from anyone who has faced a similar situation with them.
As a bit of additional information I have a second property less than 5 miles away that was leased to Penterra under the exact same lease language in 2017. Penterra paid royalties without deductions. Chesapeake became the owner of the lease in 2022, and since then has paid royalties without deductions.
Oil & Gas Pro
Todd ATTALLA
I believe your instincts are very good in trying to get this resolved before the dollars grow and I'm sure this is something you have already figured out and that is the "however, any such costs which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from Lessor's share of production so long as they are based on Lessee's actual cost of such enhancements." language can be difficult to overcome as many Lessee's will add this language to "no deduct" leases to cloud the issue.
At the end of the day, it could be very difficult to determine if the additional costs exceed the increased value but odds are they are paying you at a WASP (weighted average sales price) from a large pool of gas with many individual sales and it would definitely help to see that sales pool (which may be difficult unless conducting an audit) to ascertain if you may have a claim to underpaid royalties.
yesterday
Oil & Gas Pro
Rock Man
From personal experience, one can get these charges reversed out and credited if you have a good "cost free lease". However, it takes time and often repeated communications to get the operator to do this.
My examples were with OXY in the Permian Basin and Permian Resources (also in the Permian). It took three different communication efforts with the latter to get these charges reversed - including certified letters. Finally got results when I sent the request letters to several managers at Permian Resources.
Then finally got a notice saying that Permian's lawyers had reviewed the lease and deemed it to have the appropriate "cost free: language.
Operators hope that people will "quit" after a while as to pursuing credits for these charges.
yesterday
Oil & Gas Pro
Rock Man
FYI - THIS DISCUSSION THREAD IS ANOTHER EXAMPLE OF MY NOT RECEIVING A NOTICE OF A "NEW" DISCUSSION. ENDED UP FINDING IT ON MY OWN.
UNACCEPTABLE. AND FRUSTRATING (SINCE I HAVE BEEN TRYING TO GET THIS CORRECTED FOR MY ACCOUNT FOR A FEW YEARS)
yesterday