Transportation costs lesson learned the hard way.

Signed a lease in 2013 with COP I was concerned about the clause stating that transportation costs would be applied but was told by land man not to worry because there would never be any transportation costs due to all production being transported by pipeline.  The result was that no transportation cost were charged until October of 2015 now the back charged transportation cost exceed my payments. A lesson learned the hard way.  Never trust word of mouth.

Views: 1393

Reply to This

Replies to This Discussion

Sorry to hear that this has happened to you.

Verbal agreements mean nothing in the oilfield - has to be on paper (in your lease agreement)

Thanks Mark lesson learned.

They obviously didn't know what they were talking about, if there was no possibility of being any transportation costs then they should have been fine striking the transportation clause. Even pipelines can be charged for depending on the lease language. Transportation doesn't just mean by truck.

Thanks should have not believed lesson learned; probably could have transportation clause taken out but failed to do so lesson learned.

Not necessarily, some companies will refuse to draft a lease that does not have that clause or they will strike the transportation clause and bill it out under a marketing clause because they claim it is unmarketable if it is stuck at the well site.

In addition to transportation costs, they can also deduct for certain refining, compression, and decompression costs and depending on the company it can be hard to tell which expenses are being deducted.

Further, most leases contain a free use clause which allows companies to use produced product to power generators that run the pump jacks, pumps, and compressors, but some companies also use that produced product to fuel their vehicles or for off site operations and that fuel is deducted from the gross amount produced and you never see it because they generally only report net production.

I realize this is an old thread, but maybe someone else can get some benefit from reviving the discussion.

I have a lease that forbids deductions for transportation.  The first company to have the lease after production started honored that clause and did not deduct for transportation.  They later sold the lease to another co. and they announced they were selling the production at the well-head (for a few dollars less per bbl).  My royalty checks dropped by a few dollars/bbl as a result.   On another lease, the co is allowed to deduct transportation.  One well on that lease has oil trucked and other wells are tied to a pipeline.  The transportation cost per bbl is almost the same in either case.

Can you post your full lease that is selling production at the well head? Good lease language doesn't allow gimmicks like that. Curious what yours looks like.

 Here is Chesapeake's stance on post production costs. Until some court decides this is not correct, no "no deduction" clause is of value.



Not a member? Get our email.


Blog Posts

Cost Depletion: A Valuable Tax Deduction for Royalty Owners

Posted by Patrick Flueckiger on February 12, 2018 at 10:30am 0 Comments

Owners of minerals and royalties may be interested to learn that the Internal Revenue Code "IRC" allows a deduction known as “depletion” for oil & gas income. The depletion deduction could significantly reduce a royalty owner's…



© 2018   Created by Keith (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service