The firm of Fields, Dehmlow & Vessels is accepting royalty dispute cases involving underpayment and miscalculation of royalties, throughout Utica Shale play, including all of Eastern and Southeastern Ohio.
Producers are now fully shifting their resources from procuring leasable land and into drilling land already under lease. The focus is now on producing gas and oil. Many wells have been drilled, and many more are coming.
Landowners are dismayed to receive their royalty checks and find 25% to 40%–sometimes more than 50% of the gross value of their royalties deducted for “expenses.”
The “royalty clause” of the oil and gas lease governs how much the operator must pay the lessor. Some leases are very simple: the operator must pay 12.5% (or 16%, or 20%, or whatever the agreed-upon rate) of any amounts realized from the sale of oil or gas.
Many older leases state that royalties are to be paid on the “wellhead” price. The problem is that in modern oil and gas production does not have a “wellhead” price. Gas is sold “downstream” after various points of processing. Ohio has not yet adopted a uniform rule on whether such leases would permit the operator to deduct “post-production” expenses.
Other (more recent) leases can be more complicated. Some leases state that they are pure “gross” royalty leases, yet still will define and allow for the deduction of some “post-production” costs. This begs the question: “gross” of what?
Many recent leases contain a “market enhancement” clause that will allow for a deduction of post-production costs, typically in proportion to the lessor’s royalty. Often, the lease will specify exactly which types of costs the lessee can deduct from the royalty.
It does not matter how the royalty clause is named. What matters is what the royalty clause itself actually allows. The operator is obligated to pay the lessor exactly how the lease directs, and the operator must be honest about the actual charges.
Oil and gas companies have a duty to accurately administer and manage their leases, which requires the precise payment of royalties. Yet, operators frequently underpay royalties. There are many ways that this happens:
- The operator fails to account for all of the land for which the lessor should be credited.
- The operator calculates the royalty on less than the full amount of product sold.
- The operator calculates royalties using an artificially low price – a price not actually paid by the buyer.
- The operator will “sell” the product to an affiliated company using sub-market prices.
- The operator will deduct “post-production” costs even when the lease does not allow for such deductions. (These costs typically include gathering, separation, compression, marketing, and transportation charges between the well and the point of sale.)
- Even with leases that permit deductions, the operator inflates the costs, or the “costs” are not based on charges actually incurred with unaffiliated service providers.
Experienced Ohio Royalty Attorney
Ethan Vessels is the lead counsel in a federal class action lawsuit currently pending in the U.S. District Court for the Southern District of Ohio in the case of Cunningham Property Management Trust v. Ascent Resources-Utica, Case No. 2:16-cv-957 (S.D. Ohio).
Some cases warrant “class action” treatment. Other cases warrant singular, case-by-case lawsuits. Some leases require royalty disputes to be handled in binding arbitration.
If you believe that you are not receiving the royalty that you are contractually entitled to, please call us at 740-374-5346 or fill out a contact form. We offer free initial consultations and, in most cases, we offer contingent fees. If there is no recovery, there is no fee.
Watch: Ethan Vessels – Oil & Gas Attorney
Some leases require royalty disputes to be handled in binding arbitration. If you believe that you are not receiving the royalty that you are contractually entitled to, please call 740-374-5346. We offer free initial consultations, and in most cases, we offer contingent fees. If there is no recovery, there is no fee. Click here to learn more.