I sold all of my mineral rights several months ago and received payment…but I keep receiving royalty checks just as I did before the sale. I have deposited them. Am I entitled to keep these royalty payments. Thank you.
Probably not. If the royalty checks are for production after the effective date of your deed, you will likely owe that money to whomever you sold it to. There is often a lag for operators to effectuate the transfer so this is pretty common. Largely it depends on the language in your sale contract, but in most cases you will have to settle up with your buyer.
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I would contact the buyer and the operator immediately. Most operators have protocols in place for this occurrence. As @Permian stated, your contract language is key. If you don’t get a response from the operator before the next payment cycle, I would contact a mineral manager or an attorney for assistance clearing this up.
The oil company will continue to pay until it is notified by either the buyer or seller of the sale, along with a copy of the deed. Most division orders contain a provision about this. At that point the royalties should be placed in suspense. The buyer will later get a division order and then be placed in pay. These companies do not monitor the deeds filed in county records to see if there are changes in ownership. You will receive a 1099 for all the royalties paid to you until this is done. This is income reported to IRS for 2023. If you then pay the excess royalties to the buyer in 2024, you have to discuss how to handle this with your tax advisor.
Thank you. But how do I determine what payments I received were for production AFTER effective date of my deed? Am I responsible to make this determination? Or does the purchaser have to figure it out? The statements that come with my royalty check have many different dates that cover several previous months. I find it very difficulty to ascertain what is “production date.” Thanks again for your help.
Thanks for the info. Very helpful. What I do not know is this: How do I determine royalties earned PRIOR to sale date, and royalties earned AFTER sale date. My understanding is that royalty checks received in November (for example) might be for production in September (for example).
So who decides what is before and what is after sale date?
Thank you.
Look at the effective date on your conveyance document. Then look at the production date on your check stub/revenue statement.
It’s both the responsibility of the buyer and seller to reconcile payments.
Thank you. My check has no “production date” info. The revenue statement is filled with different dates under the heading DATE in the left-hand column. There are dozens (if not hundreds) in each monthly revenue statement I receive. Are these dates considered “production dates?” Thank you.
Yes. Companies have varying label of production (prod) date or prod month or sales date, etc. The date format may vary - such a Oct 2023 or 10/23 being the production month while the date of the check is December 20, 2023. In general, the most recent oil and gas production month will be a date which is 1-3 months before the date of the check. Your checks may also have price or volume adjustments for prior months, sometimes several years back. Bottom line, if your effective sales date was July 1, 2023, then the June oil and gas production would have been reported on the July, August or September check. The buyer would have been entitled to production from July forward.
TennisDaze - thank you for your helpful and informative reply. Good information! The practical is this: since I have already deposited royalty checks sent to me, who determines what % of each check is based on production before (or after) sale date? Do I simply wait until the buyer requests a certain amount of money as their share? Thus far I have heard nothing from the buyer regarding royalties. Thanks again for your helpful information.
The buyer should have been more proactive in getting the royalties changed over with the operators but that doesn’t change that the buyer is entitled to the proceeds of production after the effective date of your sale of your minerals to the buyer.
As for how you determine what the buyer is entitled to, look at the royalty check stubs and the dates of production. Add up all of the royalty amounts for production after the effective date of your sale.
Once the buyer realizes what has happened, they’re going to come after the money and that’s what they’ll do to calculate the amount owed. It is up to you as to whether you want to contact the buyer or not - but I think you should. It is the right thing to do (since the buyer paid for this royalty revenue stream). Also, the buyer will likely come after it anyways and the longer this has gone on, the bigger a mess it will be to clean up.
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I do not agree. Seller should first look at the Ward County deed records to see if the buyer has filed the deed. If not, then there is a much bigger problem which needs to be resolved first. If so, then the seller should immediately contact the oil company to report the sale and either cite the recorded instrument number or include a copy of the recorded deed (does not need to be a certified copy) with the notice. A responsible operator will them immediately place the royalty interest in suspense. Of course, it is possible that the operator already knows and failed to stop paying the Seller. Only then can the Seller determine how much revenue is involved. If the checks are voluminous, the Seller may have to hire someone to differentiate between the cumulative pre and post sale royalties and that should not be his expense alone. Then there is the problem with the 1099 income being reported by the operator as having been paid to the Seller. The Seller should not have to pay substantial income taxes on the post-sale royalties and also give 100% to the Buyer. Or the Seller may need to issue a 1099 to the Buyer for the royalties so he can deduct the difference. There is some possibility that the oil company might ask the Seller to refund the excess royalty payments.
Its rather straight forward, most checks are 90 days behind, so its normal to get 3-4 more checks after you sell depending on the agreed upon effective date of the sell/transfer of mineral rights/income produced. After that date has passed, then you are not entitled to the monies received even if the company is sending you a check.
Just like the taxing authorities, operators don’t know you’ve sold your property unless you or the buyer contact them. When any disputes arise regarding the overpayment of royalties to one party over another, the operator usually leaves the dispute between the conveying parties. Whenever these types of transactions occur, it’s in the seller’s best interest to contact both the taxing authorities and the operator and make sure that they know who the current owner of the property is. If you do it while the transaction is fresh, you are less likely to forget and have issues later. Don’t assume they know you sold it. Don’t assume the buyer will tell them right away.
Some run checks don’t make it easy to figure out how to understand the info. If you’d be willing to upload a pic of the title lines and a few lines of data some of us on here could help you figure out the prod date. Be sure cover your name and owner number before attaching.
If the sale has been properly closed by the buyer then you may continue to get checks in decreasing amounts until you’re completely paid for production that occurred prior to your sale date. As was stated by others the lag time in the process of getting paid by purchasers can really drag things out.
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