I have an audit clause in my lease, here in Ohio. I do not know what state law allows here but I do know that an audit is very expensive and may leave you short on information need to verify the lease royalties are being paid properly.
I have 12.5 acres in a producing unit. With so few acres it would be hard to swallow the cost of the audit because the shortages might not cover.
Also, if the audit cannot show you who the product was sold to you will never know if you are dealing with a company that does in house sales.
I betcha the good royalty owners of Ohio would approve a royalty tax that specifically is spent verifying lease adherence in regards to royalties.
As with most other issues between royalty owners, producers and the law, the royalty owners are on the shortest end of the stick.
Good question. The way the Act reads at this time, inspection would be limited to the three year period. Accordingly, under the proposed provisions of the Act, the oil and gas company would only be required to provide documentation for the three year period.
If you have an audit clause in your lease, I would check that to see how far back you can go. If you do not have a lease but have been offered one, I would try to get an audit clause with a lookback period of greater than three years.
It does not appear that the legislation deals with the issue of location.
Where would the inspection take place?
It's my understanding that the records would be made available for inspection at and in the offices of the company.
Being that most of the companies working in shale development are not local it would require long distance travel for the landowner. Or, hiring a firm in the locale of the company to review the records.
Just a thought.
They have cleverly made it nearly impossible to do a cost effective or accurate audit. This is obviously not by mistake.
I can see how many Billions of dollars could be shorted the landowners each year. But there will never be any way to prove it so I guess that means it never happened? Right?
We need the states to get involved and I would pay a special royalty tax to fund the necessary manpower needed to do the job.
There are many reasons why audits are not doable for most royalty owners. I am not a big fan of governmental intrusion into private business matters but in this particular case I don't see any other viable alternative.
Each producer should have a certain number of random, in-house audits annually, based on the percentage of the market they produce.
It has been said here on this site many times that there are untold millions of lost tax revenue for the states because of incorrect royalty payments and reported production.for any of this.
The state of Ohio certifies gasoline pumps as accurate, they should do the same with the product produced from the wells.
I will not hold my breath for any of this, I am afraid the states are owned by the producers.