Tax Credits or Incentives

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Tax Credits or Incentives

 From time to time Congress has legislated tax credits or incentives for exploration, drilling, or production.  Knowing this fact, you should request language in the lease that lets you or your  client share in such a windfall.  Oil companies have agreed to include the following tax credit clause in Alabama leases:

 Tax Credits or Incentives.  If at any time during the term of this Agreement, any federal, state, or local government or agency enacts, adopts, or promulgates any tax incentive with respect to exploration, drilling, and/or production of any mineral covered by this Agreement, and the Leased Premises, this Agreement, or the Lessee’s operations hereunder qualify for such incentives, Lessee shall perform all reasonable acts to obtain such incentives and shall, if permitted by law, allocate the Production Royalty share of the benefits of such incentives to Lessor and to prepare, execute, and file with the appropriate government agency, office, or authority such documents necessary for Lessor to obtain the Production Royalty share of the benefits of such incentives.  If such credits are available to Lessee but not to Lessor, Lessee shall prepare, execute, and deliver to Lessor such amendments to this Agreement to increase the Production Royalty in an amount sufficient to enable Lessee to receive a share of the benefits of such incentives equal to Twenty Five percent (25%) or higher royalty according to the Favored Nation escalation as provided in Section 3.11.*

 

[*Notice that the lease containing this particular clause provided a twenty-five percent royalty and had a favored nation royalty escalation clause.]

Copyright 2011 by Edward G, Hawkins. All rights reserved.