Jamie, it isn't quite that simple. The oil companies got Montana to overhaul their force pooling laws. It used to be that the cost of your portion of the well was taken from production and then you received the 8/8 interest. Now there is drilling cost 100%, 100% penalty on drilling costs, 100% penalty for new equipment or a 50% penalty for used equipment. And NO, you don't add all those together for a 350% penalty like one landman tried to say! But it isn't as attractive as it used to be. You have the original drilling cost taken from your production, the penalty comes from your production and you pay a 50% to 100% for penalty on the cost of surface equipment.
I mean it's not cumulative. Original drilling cost is taken from production and that is fair, I don't think anyone can argue with that! 100% penalty, is really not that bad if it's a good well, but you won't know that until it produces. The cost of surface equipment is taken from production and penalty of 50% to 100% for surface equipment. All total your oil pays for what you would have paid up front Plus a penalty of up to 100%. Penalty sounds bad UNLESS you compare it to a loan. There is no interest on the penalty! The money you repay the original cost and penalty will most likely be inflated over a few years time and worth less than the money the operator advanced on your behalf! You would receive a 1/8 or 12.5% royalty [ free of costs might be a little unclear as to meaning ] from the first barrel and will receive it until the penalty is retired at which point you are entitled to 8/8 interest. This is from memory but I believe you will find it essentially correct when you read the law. Not a fantastic deal, not the worst ever either when you consider that you owe nothing out of pocket...ever, unless you reach 8/8 working interest. Many people have signed a 1/8 lease and have nothing better to look forward to.