Leasing Company Adjustments Without Documentation

We’ve had issues off and on for years with our leasing company and poor/ slow communication, so this has lead to a level of distrust with the company, but we are locked into this lease and have to just deal.

Despite oil prices rising nicely, we did not get a check in Dec or Jan, when we were certain that we should have. There was no communication from them as to why, so my husband wrote to inquire. We were told that they had paid the taxes in 2019 on our behalf (??) that they needed to recoup and that they had also made an error in the percentage that we were paid the “first time” and that resulted in an overpayment that they also recouped…

Shouldn’t something like this be provided to the owner in writing in some capacity? We claimed the income on our taxes as reported to us by the company, so I am not sure how they’d ever have paid taxes on our behalf in error… to whom? That sounds like a very odd situation, period. Secondly, if they made an error in the initial payment, isn’t that on them? They called it a “software error”. Finally, are we wrong to assume that we should have been notified of any of this by the company, especially since it resulted in them withholding monies owed to us?

We are not talking a lot of money overall, less than a few hundred, I am sure. I guess I am trying to wrap my head around their error being to our detriment, too. Still, we are at a point where the value of oil is up again, they’ve added additional wells to the tract and we’re not seeing a penny recently… something feels wrong here.

Good morning :slight_smile:. They’re likely referring to production/severance tax, and depending on the state you minerals are producing in, ad valorem tax. These taxes are in addition to income tax and paid by the operator on behalf of all parties subject to the burden (which should be addressed in your lease, but is customary for royalty owners to pay their share of). Which state is your production in?

Basically, they goofed and overpaid you. The inconsistency in payment can be frustrating, for sure, but theoretically you got an advance on your royalties, and interest free at that. It may seem like they’re taking your money, but assuming everything is ethical, you’re still getting your rightfully owed royalties from the well, just shuffled around a bit in timing. You can always do a self-audit and check if your 2019 check had the proper amount of taxes removed and see if you can see what they’re talking about. It should be apparent on your check where taxes are deducted, but we can help you find it if not.

It also sounds like an issue with your royalty decimal? Did your decimal change from the division order, and were you able to check their math on the division order? That part should be communicated, if so.

Should they have notified you on the taxes issue? I tend to subscribe to the idea that more information is better, so in a perfect world yes, but they likely have thousands of royalty owners and it’s hard to say what issues they’re actually dealing with through all the ups and down 2020 threw all of us. Unless it says in your lease that this is a penalty for lack of communication or payment more than X days (even with a good reason), then they aren’t required.

Finally, the company who leased your minerals may not be the same company who is paying you royalties now. Just something to note.

And sorry, meant to add that this is in Texas.

Thank you… I will have to review the checks to see about the taxes. It’s all electronic, so it may take a bit to dig through.

Yes, there appears to have been an error in the actual number, but our share actually increased from the time of the original contract (basically we went from 25% ownership to 33% of the shares) so that should have been nailed down a long time ago. If they made an entry error on their end, the “right thing” to do would to have communicated that to us in some manner, not stopping what was a monthly payment to recoup their losses without notice to us. Again, we had to write and ask why we weren’t paid. I understand they have a lot of people, paperwork and things happen, but we ended up basically losing 2 payments without having a clue as to why.

As they’ve added wells, our payments were supposed to have gone up, too and I’m simply not seeing that additional income. It’s frustrating because the calculations are totally on their end and, like I said before, there is an issue with trust.

When did the wells come online? If you have the well names I can check the status. Sometimes it takes a few months between first production and first payment, with the first check usually having the longest delay while they set up all the payments and billing for all the interest owners. Even once the well is producing there will be a delay in payment, as your November check was likely for September/October oil production and August/September gas production.

I completely agree they should have notified you before drastically changing your payment, which would be especially frustrating if the payments seemed steady and reliable.

We’re here on this forum to help walk you through auditing your payments (which I always encourage royalty owners to learn how to do), and can help point you to resources like the TX NARO’s recent webinar on royalty auditing (not sure if it’s available to re-watch yet?) and the directory of professionals on this site if you need more in-depth help.

One tough lesson would be that oil and gas royalty payments are inherently risky and unreliable, even with a competent operator (which this entity may or may not be…). The well(s) could be damaged by a storm, the reservoir could be damaged by offset well activity, the pipe connecting the reservoir to the wellhead could break and need repaired (“worked over”), a crazy pandemic could send prices crashing and cause wells to be shut in or have negative payments…you know, all sorts of weird stuff.

It’s the Mustang tract in Midland. I understand that there are now 2 producing wells and multiple others planned/ permitted/ maybe drilled already?

With everything else going on (we live in a high Covid area), it would have been nice to know that we’d be missing the December and January checks. Woulda coulda shoulda. :wink:

I’m seeing the Mustang H120UH and Mustang H150UH both producing, four permits issued 12/2019, and three cancelled permits.

For the H120UH and H150UH production, it seems to me the newer H150UH well impaired the production on the older well and are producing from the same rock (when ideally they’d be each producing out of their own chunk of reservoir). This is unfortunate, since the wells are decently spaced at 2400’ apart and I wouldn’t have expected such severe interference, but it a problem that the whole industry is trying to solve. If you feel like googling the nerdy details, search for parent/child interference in the unconventional wells. It happens when an older well depletes the rock just enough to cause the physics to be off on the second well and not properly tap into new reservoir. Both wells end up producing from the same tank.

^ that dip in production in May 2020 was man-made, not the wells/reservoirs

Hah, oh man, this unit is nuts. My heart goes out to the land crew and DOA’s. Crazy!!! Each little block on here is probably at least two mineral owners. My husband is a land surveyor and just laughed when I showed him this.

mustang survey.pdf (2.6 MB)

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