You are here:

Oil/Gas/Strange lease clause


Hi Chris
We are looking at a lease from middlemen who inserted the clause below in the lease. I have never seen this type of clause with these particular possible deductions. I ask a landman friend and he has no idea. Clause is below. The part which starts with the words..... EXCEPT FOR,is what confuses me. What could this involve. Thanks!

Lessee shall pay an amount equal to _____ Percent (__%) of the price received by Lessee from the sale of the Leased Products at the first armsí length sale made in good faith on commercial terms in the relevant market from Lessee to an unrelated third party, without deduction for taxes, fees or costs of production or related expenses of any kind, whether production or post-production, EXCEPT FOR, if applicable, Lessorís proportionate share of downstream transportation expenses for any sales of Leased Products made at a distant sales point in a downstream market (e.g., New York City Gate) after delivery to the point of sale at the interconnect with the interstate pipeline, accompanied with supporting documentation as to the cost basis of such downstream market sales; otherwise, Lessor shall be made paid, with respect to the full wet gas stream, at the tailgate of any processing plant for its proportionate share of the residue gas, and the liquids or other substances extracted from the full wet stream gas, and shall be paid at the central sales point sales off the Leased Premises with respect to oil; provided, however, that Lessor shall never receive more or less than Lessee receives for the sale of its own share of production nor shall Lessor receive more or less than Lessor would receive if the Leased Products had been sold in the local market to a third party.


From the look at things your leasing efforts have veered off course. Possibly past the point of no return.

Since this matter pertains to a lease or a form of a contract I have to disclose that none of this response should be used as legal advice and for that reason I have to be careful in how I answer your question.

In past experiences for myself, when the Lessors starts to bring up strange things that extend past their responsibilities as a mineral/land owner in conversation or in potential agreements, they need to be very quickly and bluntly handled or I walk away from it all.

Each lessor and/or lessee can ask for anything they want but it should be agreeable on both sides. if not then it is not worth it.

If this was me I would thing of doing the following.
- quickly tell them no and distance yourself away from the situation immediately.
- put a new face/voice on it as a way to reset everything.
- have the new voice make it clear in why you are no longer talking with the principals until there is an agreeable terms
- possibly offer more money for the other party to overlook this subject matter if you feel it is really worth it. 99% of the time I find it easier to just find newer people though.

I find that time is money. I would tell them no, the reasons why, and walk away from if it was not up to my standards. There are plenty of reasonable people in this world. I would also make that very clear to them as well.

Chris Termeer


All Answers

Answers by Expert:

Ask Experts


Chris Termeer


I can answer a broad variety of questions about oil and gas in the upstream, midstream, and downstream sectors of the industry. Topics of knowledge include but are not limited to: * History of the industry * Basic questions about formation of hydrocarbons (hydrocarbon window, geologic processes that create oil and gas formations) * Types of formation structures, source rocks, and traps * Surrounding production analysis (how to, importance of etc) * Basic questions about magnetic surveys, geometric surveys, seismic surveys (2D and 3D) and radiometric surveys. (Including relative strengths and weaknesses and how performed.) * Basic questions of cable tool drilling * Complex questions about rotary drilling, its components, operations, how to set up a rig. Drilling operations including fluid/mud, cuttings analysis, downhole testing, directional drilling, making and tripping pipe, cementing casing (importance of and how performed etc), common drilling mistakes and problems. * Complex questions about post- (though sometimes occurs during) drilling activities such as well logging, sidewall and whole core sampling, drill stem testing, reserves analysis and projections. * Basic questions about well completions including installation of surface wellhead and subsurface safety valve, well perforations, lateral and horizontal completions, hydraulic fracturing, (I prefer the spelling form "fracking" for the active verb and "frac" for the noun form) and wellbore swabbing. * Basic questions about so-called "flush production" (others call primary recovery) such as natural gas drive, water drive, compaction drive and gravity/dip drive. * Complex questions about artifical hydrocarbon lift technologies such as the sucker rod pumpjack, plunger lift pumps, gas lift pumps and electric subsersible pumps. * Basic questions about secondary and tertiary recovery techniques including water flooding, gas injection (be it CO2 or N), anaerobic recovery and so forth.


I have worked in this industry for many years and have at least some experience in all aspects of it. My specialty in recent years has been in upstream exploration and production. I have worked as a Consultant and general partner for a variety of projects in Texas, Illinois, Louisiana, Colorado. My experience is also built on my extensive writing in the oil and gas industry on a series of blogs and websites and my recently published book, Fundamentals of Investing in Oil and Gas.

Owner,, Owner,, Owner,

Self-published author of Fundamentals of Investing in Oil and Gas, (ISBN: 978-0-9890434-1-0 and Library of Congress Control Number: 2013906080) Contributing author on

Bachelor's of Science from Michigan State University with a variety of other coursework at other Universities including the University of South Florida and University of Wollongong.

©2017 All rights reserved.