If you are an unleased mineral owner, then you are treated as a working interest in the wells - sort of like being both the lessor and the lessee. Suppose you own 2% of the minerals in the well and had a 25% royalty. Normally your lessee would pay 2% of drilling and operating costs and you would receive 0.02 X 0.25 = 0.005 of the revenues. The lessee would keep the other 1.5% (0.015) of the revenues and pay all related well costs. Here you are an unleased mineral owner. On a well-by-well basis, the operator pays all the drilling and operating costs and is entitled to recoup your unpaid 2% of all costs against the 2% of revenues until operator is fully repaid. This is called pay-out, where all costs to date have been recouped from oil and gas sales of the well. You are still an unleased mineral owner, but now you get 2% of the revenues LESS 2% of all ongoing well costs. This can be set up as (1) you are paid the full 2% of monthly revenues and you separately send a check for the 2% of monthly costs OR (2) you are paid the 2% of revenues and the 2% of costs are deducted out of the check payment. The wells you listed were completed around June 2021 and are four years old. Maybe the referenced payout was two years ago. Be aware that you will be reporting this working interest income on Schedule C, as earned income. Your CPA can advise you on this.
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