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Oil/Gas/Net vs. Gross royalty payments

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Question
Chesepeake Energy in Ohio wants me to sign a lease agreement with 20% royalty, however, we pay all post-production cost.  I have asked for a net royalty percentage but they don't seem to want to budge on this issue.  One of the problems I have is that I don't know what a good net percentage would be and I don't know how much to expect to come out of my gross percentage for post production costs. If I could get them to pay me net royalties, do you know what would be a reasonable percentage to ask for?  If they insist on a gross %, do you know what percentage would come out of my royalty? I know this would probably vary by area, but will I end up with nothing?

Answer
Just tell them you want a "no deductions" clause in your lease. That will take care of the post-production costs issue if they abide by the clause. If they don't, then you would have to take them to court in order to enforce it, but better to have it in there so you'll have a leg to stand on if push comes to shove.

I would have an attorney look over their version of the clause before signing the lease. Could be your attorney will have a better version.  

Hope this helps you out.
Frederick M. "Mick" Scott CMM, RPL
www.mineralhub.com
The Mineral Hub  

Oil/Gas

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Frederick M. Scott

Expertise

Oil and gas leasing, lease negotiations, how to best deal with the oil and gas companies or their representatives, buying/selling mineral rights, forced-pooling, correlative rights, deeds and conveyances, and "post-production" costs. I am most experienced with Oklahoma properties and laws, but am able to answer questions concerning other oil and gas producing states in many cases.

Experience

I am a Certified Professional Mineral Manager (CMM) certified by the National Association of Royalty Owners (NARO) in Tulsa, OK. I am also a Registered Professional Landman (RPL) with the American Association of Professional Landmen (AAPL). I have managed my family's oil and gas properties in Oklahoma for over 10 years and have dealt with many landmen, title analysts, attorneys and other oil and gas professionals in the process. I have written several articles which have appeared in various oil and gas industry magazines and newsletters. I have negotiated and drafted leases, prepared deeds, affidavits, and other legal instruments relating to my own minerals, as well as performed title, legal research, and curative work for same. I have acquired a good deal of knowledge on the subjects of oil and gas law, mineral appraisal, and landwork over the past ten years, and also worked as a professional landman and lease buyer for a time. I've seen the business from "both sides" and therefore feel confident I can help out most of the folks who ask questions in this forum.

Organizations
National Association of Royalty Owners (NARO); American Association of Professional Landmen (AAPL)

Publications
National Association of Royalty Owners "Action Report" (ROAR); NADOA Magazine, The Mineral Hub, Landman Magazine, and several royalty owner association group's newsletters.

Education/Credentials
Certified Mineral Manager (CMM), Registered Professional Landman (RPL)

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