I have Royalty Interests in Roosevelt County Montana. Since 1982 we’ve had 4 different operators all producing only oil (no gas) from vertical bores from various pay zones. During 35 years of production it has been the practice that the operators’ only (IDENTIFIED) deduction prior to calculation of their Net Interest was for the cost of transportation and nothing more.

In 2012 a new Operator, #5, stepped into the picture and drilled 2 horizontal wells in the Bakken formation–each having a 1280 Ac spacing. From day 1 there was no calculus of the Division Order but just interest values that I immediately told the Houston-based Operator that their calculus was incorrect (resolved via a lawsuit lasting 5 yrs in which we won).

More importantly, however, is the Operator’s Deductions which includes: Compression and Gathering & Treating (CMG), Post 1999 MT Severance Tax (MST of 9.3%), MT Royalty Interest Severance Tax (MTR of 15.1%), and Cost of Transportation (TRN)–all deducted before calculation of the Operator’s Net Interest (ONI). The ONI times my Royalty Interest yields my Owner Value which is then multiplied by my Royalty Interest times the CMG, MTR and TRN respectively!! One can see that through the Operator’s means of calculation I am paying an MTR of 30.2%! I’ve told the Operator that if the MTR also applies to their interest that should not be deducted prior to calculation of the ONI…

Question: have any members of this Forum experienced this kind of lunacy in Montana or in any other State for that matter???

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