I have a small interest in the WRS Hesperaloe wells in Martin/Howard Counties. It has been over a year since we have seen any royalties due to disputes between the operator and the leaseholder. They are “hopeful to work it out soon”. Also, the leaseholder did not start paying until several months after the wells became active. I was told that since the leaseholder did not participate in the drilling the wells will not pay until operator has recouped costs. So I guess my question is, just because the operator may not be paying the leaseholder, is the leaseholder still responsible for the owner’s interest royalties? I’ve read all through the mineral lease but do not understand the legal jargon. Please advise.
The oil and gas lease is a legal contract between the mineral owner and lessee. The lessee is always responsible for correct payment of royalties. Most often, when the lessee is not the operator and participates in well as non-operating working interest, the JOA (joint operating agreement) between operator and non-op WI will provide for operator to pay royalties. If the lessee does not participate, then the operator is entitled to recoup all drilling and operating costs from revenues. The operator is not obligated to pay royalties to mineral owners under leases to other companies which are not participating in well. There are recent Texas court decisions on related issues, but things are not clear. It depends on all the facts and circumstances. If the primary term of your lease expired before you were paid any royalties, then you can likely step in as an unleashed mineral owner and get all the revenues less expenses. Your lessee would be out. Even if you were paid royalties by operator, the Cimarex v Anadarko case held that lease expired because the lessee did not participate and so there was no production under the lease. If you were paid some but not all royalties by your lessee before the end of the primary term, then that is another situation. It is complicated and you need to consult an oil and gas lawyer with copies of your lease, correspondence and other information to determine your rights and protections. John McFarland’s Lawyer Blog has several discussions about this. Cimarex v. Anadarko - Is a lease held by production if the lessee does not participate in the well and there is no operating agreement? — Oil and Gas Lawyer Blog — October 7, 2019 and Devon v. Apache - Royalty and the Non-Consenting Co-Tenant — Oil and Gas Lawyer Blog — October 23, 2018
Thank you. I was just reading about the Devon v Apache case. So AEI Permian approaches my grandmother in October 2017 to lease for 3 years her supposed 1.35 MA in Sec 1 Blk 35 T1S, Howard County. I do not recall what they offered per mineral acre but They never paid it and when I pull up the lease she signed it says $10. Anyhow she never heard from them again. Then she passed away in 2018. Come September 2020 when the original lease is about to run out we get a call and a check from Acoma. Acoma has now taken over for AEI and they need a ratification from all her heirs. My dad had already passed so I got his part. The check they sent ranged from production dates of 7/2019 to 6/2020. Not really knowing what all this was about and just going along with the family, we sent all the paperwork back signed and filed all the necessary probates in Howard County. Then never heard from them again. Suddenly I’m getting JIB stmts from Crownquest and past due tax statements from Martin County. So I start digging. Production on the Hesperaloe wells started Dec 2018 and we never saw royalties for that. Haven’t seen royalties since 06/2020. Now apparently Acoma and crownquest are in dispute if leases are valid. Crownquest said they offered to pay Acomas lessors but Acoma said no. Acoma says crownquest did not give them the opportunity to participate in drilling therefore Crownquest will not provide and production data and will not pay out until their costs are recouped. Crownquest says that Acoma should still be responsible and Acoma says our royalties should be coming from Crownquest. I just feel like I’m getting the run around and it’s now been well over a year and I don’t know if I have a legal ground to stand on or if there is any type of statute of limitations. I just feel like the more I dig the more questions I have.
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