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Mineral Rights 101

Understanding Post-Production Charges

Post-production charges were not a topic of discussion…until the shale boom. Essentially, they are fees that are deducted from sold volumes of oil & gas for the marketing, transporting, and processing of the products. When a well simply produces oil & gas, the charges are straightforward. With the entrance of wet-gas, or liquid heavy gas, operators have many more fees associated with moving produced volumes. Leases in many states did not include a provision to make the minerals free and clear of all post-production charges and so these fees were taken out of a mineral owner’s check. Some owners have seen higher post-production fees taken out of a check than the sold volumes were worth, meaning their check has a negative value. This does not mean you owe money, but rather that you will not receive a positive payment until those negative amounts are paid off from the sales of new royalties. Many operators operate in good faith with their owners and have not charged outrageous fees to mineral owners to pocket the difference, but some have. In the past few years, there have been numerous lawsuits against operators for post-production fees taken out of a mineral owner’s check. If you are signing a new lease, we recommend getting a lawyer to write in your state-specific free and clear clause so that you can avoid post-production charges entirely.

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