Category Archives: Gross Proceeds

Southwestern Deducts Post-Production Costs Without Showing Them on the Check Stub

Posted on by

The way most oil and gas companies inform you about how much production came from the well, how much of it is yours, and any deductions taken from your royalty, is on the stub that comes with the royalty check.

Blog Post_Redacted_2017-06-22

Southwestern appears to have taken lessons from Chesapeake, as they figured out a way to hide deductions from the royalty owners.  They just didn’t list the deductions on the check stub.

How they made the numbers work isn’t clear from the article, but what is clear is that a jury decided that Southwestern owed those deductions to the royalty owners.

If anybody has been paid royalties from Southwestern, check your check stub production numbers against the production numbers listed at the Office of Oil and Gas’ web site.  If something looks fishy, give us a call and we’ll help you get things sorted out.

 

Another Reason Why You Need a Good Gross Proceeds Clause

Posted on by

West Virginia University is working on a project, together with a large number of other groups, that would significantly improve the royalties paid to mineral and royalty owners–if it works.

The issue is that West Virginia terrain is so rough that it’s difficult to install pipelines.  The pipelines are needed to transport the produced natural gas to centralized refineries, cracker plants, separation plants, and the like.  Since pipelines are so difficult to build that sometimes they’re not built, leaving gas “stranded”, unable to be transported to a place it can be used.

The U.S. Department of Energy has started a branch of its National Network of Manufacturing Institutes which it calls Rapid Advancement in Process Intensification Deployment, or RAPID.  RAPID will bring together people from academia, industry, government labs, and non-government labs to tackle “process intensification“.

Process intensification in the natural gas fields will combine multiple gas processing steps into one.

The result will be the ability to process gas at the wellpad using small, mobile, modular units.  The processed gas would be turned into products that could be transported in trucks.  The benefit to West Virginia is obvious.

West Virginia royalty owners could expect higher royalty checks, and in some cases where they wouldn’t see any real royalties at all, they would see significant royalties.

Of course, leases would have to be written with the idea of capturing those royalties for the mineral owners.  Companies will, of course, try to pay royalties on the lowest value they possibly can.  Mineral owners should be able to get the highest value they can.

Getting a strong gross proceeds clause into a lease will become even more important for our clients.

EQT is Buying West Virginia Leases from Statoil

Posted on by

Statoil has sold their interest in leases in Wetzel, Tyler, and Harrison counties to EQT.  EQT is one of the few companies that is making money right now, and is increasing its footprint in the Marcellus/Utica sweet spot.  It’s a good move by EQT.

Anyone who had a lease with Statoil in those counties could expect to be dealing with EQT in the future.

As a heads up, EQT’s standard agreement allows EQT to deduct post-production costs from the royalties they pay, so they may try to get away with deducting post-production costs from any leases Statoil may have signed that do not allow for the deduction of post-production costs.  If you find yourself wondering why your royalty check is suddenly much smaller, check the deductions column.

Post Production Costs

Posted on by

Dollar SignThe West Virginia Royalty Owner’s Association posted a quick calculation showing what post production costs will do to your royalties.  It’s quite simple, so we won’t belabor the point on this blog.  Hop on over to this page and take a quick look.

When you’re reviewing your lease, watch for “post production costs” and “market enhancement”.  If either of those terms are in your lease, you will be charged for post production costs.  Keep in mind that we lawyers are sneaky and very good with words.  Post production cost language can be hidden, obscured, and difficult to understand.  If you have any questions at all about whether your lease includes post production cost language, call this office at 304-473-1403 and someone on our team will explain what we can do to help you.

Post-Production Costs in West Virginia

Posted on by

DocumentHere’s an excellent quick article by Byron C. Keeling about the differences in how royalties are supposed to be calculated (by law) in many of the oil and gas producing states.  Note that in West Virginia a producer has to calculate payment from the first point of sale, and can’t deduct any costs up to that point.  The only exception to that rule will be if the lease specifically lists post-production costs that can be deducted.  Even then, they may not have gone far enough according to the West Virginia Supreme Court of Appeals, which said that there also has to be a method of calculating those costs.  See Tawney v. Columbia Natural Resources.