I have always been of the opinion that each, individual well stands on its own when it comes to a payout where revenues exceed expenses. However, I have a mineral owner who was told by the operator that it is on a lease basis which is a big problem since there is never a payout since since wells could be added forever to a lease.
Dear Robert,
I cannot give a citation, but there is a Texas case on point that holds that it is on a well by well basis. The Operator is lying, unless there is another document or agreement in play.
Best,
Buddy Cotten
Buddy,
I'm glad to hear there is a Texas case that holds that payout is on a well by well basis and not on a lease basis. Maybe some legal expert will give us a citation. I have two different clients where each operator is refusing to pay the royalty owners saying it is on a lease basis. Thank you for your usual genius!!
Bob Malone, Oil and Gas Auditor
Dear Robert,
If the operators' are not paying the royalty owners until they reach "payout" they are breaking the law unless there is some agreement to that effect. Royalty owners' are due their royalty from the first production on, irregardless of whether the operator produces enough to ever reach payout. When I have a chance I'll run the question on Lexis and get you the citations for payout by well and payment of royalties from production.
Does it matter if the well is in a unit? I may be thinking more of a working interest owner. It would seem the mineral owner would be due on all production from someone.
What kind of interest is it? It should be on a well by well basis. If the operator is saying that they are not paying royalties because the entire lease is not making any money then you should consult a oil and gas attorney. An operator can not keep a lease if they are losing money. It could possibly fall under a failure to produce in producing quantities. An operator can not simply produce oil and gas from a well or group of wells and lose money just to retain the acreage for further production or sale. This situation is always case sensitive and one would have to look at all factors. It would also help if you could provide some information on the well(s) and lease language. Right now with any claims being made, operators are paying attorneys and not royalty owners in dispute.
The bottom line is I need some legal language in Texas law that specifically says that each well pays out on its own. It cannot be a payout on 2, 3 + more wells. That reminds me; I asked my land guru to go to the law library and do some research. Thanks!
Thanks! I'll check them out.