Royalty Payments Texas

General Mineral Rights Discussion
1

My royalty payments lag several month after sale of oil and gas from a lease located in Texas.

The operator distributes oil and casing head gas to me as a mineral owner. What I have found per RRC is that the operator is required to send royalty payments 60 days following month of actual sales on oil and 90 days on casing gas.

I have to continue to ride the operator to get payments on timely basis. Is it possible to ask operator to have my interest distributed by the first purchasers rather the operator.

Also I am more than curious to see the oil and gas payments that the operator actually books.

I feel that the operator may be holding out some of the oil and gas proceeds on gas.

The gas prices shown on my royalty check detail seem to be low as to $/MCF. I realize that there deducts from the natural gas plant that takes the gas.

My lease dated back in late 1940's states actual price that the operator is paid on.

Is any recourse to hopefully get paid direct by the product buyers? Also am entitled to get a copy of detailed pipeline statements for gas. And also oil pricing shown or their oil check?

Ledlie Powell

2

I can’t tell if anyone has replied to your post. But in the past if I had any questions as to accounting and didn’t have an advanced knowledge, I would get an audit done, using a production accounting service. They can contact the operator(s) and get into their room to do forensics. The cost depends of course, but if the companies owe you money/interest on unpaid royalties it can be in your interest to pursue it. All oil companies are happy to make things right, and they understand the lease documents and their interest in the well(s) are in jeopardy if they are in breach of obligations. I hope this is of some help, the vast majority of owners just cash the checks and believe its correct. But most of the properties being accounted for have changed hands more than once. One mistake gets carried on indefinitely if you don’t care.

3

I’m a division order analyst and your questions are ones I hear pretty often. You might have difficulty getting the purchaser to cooperate with you, though. I suggest that you go into the TRC website, go into the “P-4” records, find your well, and see who the current registered purchasers for both oil and casinghead gas are.

Then contact the purchaser, ask for their division order department (if they have one) or accounts payable department (if they have no D.O. department), and ask if they have a policy allowing a royalty owner to receive revenues directly from them. If they say no (a very high possibility), there’s nothing you can do short of getting a lawyer to see what recourse you might actually have. But that’s incredibly expensive. If the purchaser says yes, they will tell you the procedure to follow.

Being a late 1940’s lease, I doubt highly that it contains a “cost free clause” so that no post-production costs can be deducted. And without one, I’m sad to say that you pretty much are at the mercy of the operator as to what those costs can be. But, they must be actual fees and costs charged against all of the payer’s revenues, not just the royalty owners.

Some companies still practice the underhanded policy of deducting costs from the purchase price so the costs are hidden. Rulings in court cases reflect that deducting post-production fees from the per-unit price, and then calculating the royalty due, is not allowed. Those rulings say that post-production costs must be identified by name, and state the amount deducted for each named cost. At least you will be able to see how high the deducted costs are, if the purchaser is willing to tell you the per-unit price they actually paid to your payer for that month. The company I work for has some wells that, unfortunately, the cost of gathering, treating, separating and dehydrating the gas can be as high as one half of the total revenues from the sale. My company must pay their share of those high costs, too, and they are none to happy about it.

That said, you indicate your well is an oil well. There should be NO post-production costs on oil, however, its value can be very low depending on how “dirty” it is–how much refining is required and value of whatever products are salvaged. As for the casinghead gas, there could be post-production costs, maybe.

I hope this helps.

Marsha Breazeale

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