Oil/Gas/Division order and lease
Hi Marsha. I received your answer for the question I sent on 11-10-2014 thank you. My question is concerning a lease I have and a question on marketing costs. The lease I have states in the royalty clause (a) on oil, the equal one eight 1/8 of all oil produced and saved from said land, the same to be delivered free of cost at the wells or to the credit of the lessor into the pipe line to which the wells may be connected. Can you please ex plane this. I all so have a question on marketing cost. What are some of them? I am talking about land in Texas. Thank you for the help. I all so found out that Devon Energy is marketing and not delivering.
Let me begin by saying that oil and gas, when it is still in the ground in Texas, is treated as real estate property. When it is produced and severed from the ground at the wellhead, that same oil and gas becomes personal property just like a diamond ring or car. This is an important concept for you to understand before I can answer your questions.
Your lease clause says "...one eight 1/8 of all oil produced and saved from said land" which means the royalty is payable to you after the oil has been produced and severed from the land at the wellhead.
Then it says "...the same to be delivered free of cost at the wells" which means that all of the costs of exploring, drilling, producing and equipping the well in order to get the oil and gas up to the wellhead has to be borne 100% by the oil company. That is the "cost" that you are "free" of in this phrase.
Then it says "...or to the credit of the lessor into the pipe line to which the wells may be connected." Small volumes of oil production can be routed to a big tank near the wellhead and when the tank is full, one or more trucks can come out, load up, and haul it to the refinery. For larger volumes of oil production the oil is routed from the wellhead to the nearest pipeline to carry it to the next stop in its journey to the refinery. A meter is installed at the point where the smaller wellhead pipeline joins the large pipeline, to measure exactly how
much oil has flowed from the well and is entering the pipeline. Your 1/8 part is in that measure, but remember, now it is your personal property, and you are responsible for all of the costs of getting it from the wellhead to its end market according to the language in your lease. All of the costs to get it from the wellhead to final buyer are called post-production costs.
"Marketing cost" is a grab-bag phrase just like "medical costs". The costs will vary from situation to situation, but must always be related to "marketing", which are costs associated with finding a buyer and getting the oil to that buyer. That said, I have never seen marketing costs deducted from oil revenues on a royalty check. Marketing, transportation, treating, dehydrating, and marketing fees normally are associated with gas production, not oil production. Usually, the posted field price for the oil is already adjusted for the unavoidable post-production cost of marketing.
There are two possibilities: (1) look closely at your check detail again and make certain that the marketing fees are being deducted from gas, casinghead gas, or plant products and not oil or condensate. Read the check detail legend to make sure you're reading the product code correctly. Or, (2) the remitter made a mistake when inputting (booking) the revenue data into their computer database.
I'm not certain what you mean by "Devon Energy is marketing and not delivering". I suggest that you contact the royalty payer (Devon?) in writing, return receipt requested, addressed to "Manager, Marketing Department" at their address in Oklahoma City and request a full explanation, in writing within 30 days, of the exact nature of the "marketing" costs being charged against your oil or condensate royalties. If there has been a mistake, your letter likely will cause them to correct it and reimburse you.