Category Archives: Post-Production Costs

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

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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.

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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.

 

Cheated Royalty Owners are Uniting

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West Virginia royalty owners will want to pay attention to what’s going on up in Pennsylvania.

For years, Chesapeake and other oil and gas producers have been deducting costs from royalty owners’ checks in large amounts.  Some of those deductions have been so large that some royalty owners have gotten negative amounts on their check stubs.  In other words, the royalty owners have ended up owing the company money.  Everybody knows that’s not right.

Up in Wyoming County, PA, over 200 people showed up for a town meeting to discuss the problem a couple weeks ago.

Discussions revolved around how to force the companies to pay a reasonable royalty.  Some suggestions included legislation, forcing the companies into arbitration, and organizing at a grass-roots level.

Chesapeake took a lot of leases and drilled a lot of wells in West Virginia at one point.  Any West Virginia royalty owners who have seen enormous deductions from their royalty checks should be aware that taking deductions is not fair, or legal, in West Virginia.  You can do something about it.

If you need help with enormous deductions taken from your royalty check, give the office a call at 304-473-1403 and set up a time to discuss your situation with one of our staff.

Another Reason Why You Need a Good Gross Proceeds Clause

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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.

Chesapeake (and Most Other Producers) Doesn’t Pay Royalties Right

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This article from the Pittsburgh Post-Gazette describes a royalty owner’s experience with Chesapeake Energy.  In short, Chesapeake ignored a lease clause stating that no deductions would be taken from the royalties.

This owner’s experience is very common.  Chesapeake is known for taking post-production costs out of royalties, even when the lease explicitly says they can’t.

If your minerals have been produced by Chesapeake, you should take a look at your check stubs.  You will probably find that post-production costs have been taken out.

Here in West Virginia, the only costs that can be taken out are those that have been specified in the lease and for which a method for calculating them has been shown in the lease.  See Tawney v. Columbia Natural Resources.  Most leases don’t meet this standard.  Most companies shouldn’t be deducting post-production costs.

Chesapeake isn’t the only company that will deduct post-production costs when they’re not supposed to.  Our office recently got Antero Resources to pay out close to a quarter million dollars in post-production costs they weren’t supposed to deduct.  We didn’t even have to go to court for that one.

If you suspect that post-production costs have been deducted from your royalties and you can’t work out the issue with the producing company, give us a call and we’ll help you out.  304-473-1403.

EQT Buying Trans Energy

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EQT is buying Trans Energy’s properties in Marion, Wetzel, and Marshall counties.  Any of our clients who have leases with Trans Energy will soon be dealing with EQT.  Just a heads up.

This purchase will not change any of the terms of your lease.  However, if Trans Energy was interpreting it one way, you may find that EQT will interpret it another.  If your lease prohibited the company from deducting post-production costs you should really keep an eye on your check stubs to make sure that EQT doesn’t start to deduct post-production costs.

Post-Production Costs in PA: Fight!

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Mineral owners and companies are having a little dustup over post-production costs up in PA.  Over the last couple of days, Bradford County has passed a resolution asking that all production be stopped on wells where the mineral owners are receiving little to no royalties, and hired a firm to put together a video on the subject.

Since it’s not West Virginia, and we’re pretty strapped for time right now (check the date of the last blog post), we haven’t been discussing it.  However, Marcellus Drilling News has been reporting about it pretty thoroughly.  It’s a subject that doesn’t get much attention in West Virginia, but should.  There are plenty of mineral owners here who are getting post-production costs removed from their royalty checks.  Most of them shouldn’t.  Here’s the link to the most recent MDN article about the battle in PA.

Post Production Costs

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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

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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.