Negative Amounts on Royalty Statements

I am new here, and I hope I am asking this in the appropriate area of the forum...

I inherited mineral rights for a number of properties when my father passed away nine years ago. It wasn't until last year that I was able to get all of the Division Orders signed and returned to the companies.

Some of my interest in wells in Gregg County TX were sold multiple times and finally ended up with Quantum Resources Management LLC. I received Division Orders from them on Monday and returned them earlier this week.

Yesterday (without them being in receipt of my signed Division Orders), I received a Royalty Statement from them dating back to 2005. It contains 162 pages. Many of the entries are negative offsets. They will literally pay me a penny and then take it away with an offsetting entry. I honestly do not understand this. There are over a hundred pages with this sort of activity. Can anyone shed any light on what this is?

Do you have copies of the particular lease now being operated by Quantum? You need to know what terms were agreed upon in the lease to understand what they are allowed to deduct (if any). Normally severance taxes are deductible (if necessary).

Based on the frequency of entries you are describing, it sounds more like a working interest as opposed to a royalty interest, but I am just speculating. You should really look at the production history on the RRC website and verify all of the production numbers against your royalty statements. I would also want to check and see if any tax exemptions have been granted to the operator of that lease. Nothing like getting taxes taken out of your royalty check when the operator was exempt from paying them altogether.

It is very difficult in my opinion to collect royalties in suspense when companies have transferred numerous times since the suspense started. I have a family friend with an issue similar to this in West Texas right now, and it is an absolute nightmare, especially with lack of cooperation amongst the heirs of the mineral rights on proceeding forward to collect the proper amount from the operator. Those royalties go back to 1997 and are split between approximately 30 family members. Will probably never get taken care of.

Thank you so much for your reply, I truly appreciate it.

Like the other properties that I have inherited, I have never seen the original copies of the leases. All I have ever seen are the Division Orders sent by various companies. Quantum sent a very basic Division Order to me earlier this week, which I signed and returned.

I cannot identify the properties on the RRC website. All I have are the lease/well numbers provided by Quantum.

I have uploaded a copy of one of the 162 pages of the Royalty Statement (with my personal information redacted, of course) in case anyone would like to take a look at what I am trying to describe. The file is in PDF format.

Once again, many thanks from a complete newbie to all of this.

Sorry, the file did not upload. Let me try this again...

1802-scan0064.pdf (2.83 MB)

Will take a look at it this weekend and hopefully get the RRC info for you so you can compare the data (if someone else doesn't beat me to it!)

Thank you so much - any help would be appreciated.

That statement basically says that you own almost nothing.. I own 2/10ths of an acre in a 137 acre pool with hundreds (if not a thousand) other owners, and my royalty interest is bigger than yours. How much surface do you own, or think you own? Also the adjustments on that CGT are likely "Compression, Gathering, and Treating" expenses. You really need to look at your lease provisions to see how the royalty amount is calculated. If it is computed at the mouth of the well, any other terms prohibiting such deductions (CGT) may not apply. The information to identify the well is blanked out so there was nothing I could identify to compare with the numbers on the RRC website. Quick check of their calculations appear to be pretty consistent. Your interest is just so low (they claim) that you were earning 14 cents a month, etc. Again I would want to compare their production numbers with the RRC and also you want to check your lease and what royalty interest they calculated on your division orders.

Thank you so much for taking a look at the documentation and for your reply, Kitchen.

I figured these were basically worthless. I believe they were originally purchased by my grandmother, then split between my father and his sibling when she died, and then they were split again between me and my sibling when my father died. I am sure my cousins have minuscule interests in these as well.

I have never seen the original leases.

My mother had the same thing happen when she signed DO's back in 2009 with another O&G Company that showed all the Unit's w/Tract #'s and calculated RI so I contacted them regarding the issue but they never resolved the incorrect RI percentage on the Oil & Gas Production that was suppose to go back to 1989. They only paid from 1991 to present and the RI percentage (0.001020408) was incorrect (only paid 1/2 = 0.000510204) during 1991 to 2007.

She inherited the Mineral/Royalty Interest from her father back in the early 80's and noticed a Mineral Title issue due to an undivided 1/49 Mineral Interest not matching up with the O&G Lease (1/8 of 1/49) from 1940. Therefore, she went to a Law Firm and hired an attorney to verify Title on her father's Mineral Interest Ownership to all property's who filed a law suit with O&G Company since they didn't recognize her father's undivided 1/49 Mineral Interest on all Unit's & Tract #'s. After the Mineral Title Ownership was recognized with O&G Company, her attorney (who gets 20% of 1/49) filed a 2nd lawsuit against the O&G Company to get a bigger interest on the Lease (1/5 of 1/49) but her attorney cancelled the 2nd lawsuit because he signed the DO back in 2007 and he never told my mother. She found out from the O&G Company in 2009 that her attorney signed the DO so she called her attorney but he denied it so I went online to the Property Tax Website and saw her attorney's name on those Mineral Property's. Therefore, she signed the DO in 2009 and noticed the incorrect RI percentage for back production and she contacted her attorney (also mailed document's) but he never followed up with her on anything. I figure the Statute of Limitation's has ran out to get the 20% back from her attorney who cancelled the 2nd Lawsuit when he signed the DO in 2007. Also, my mother noticed on the Property Tax Website that the O&G Company didn't give her attorney RI on all Unit's & Track #'s from the 1st Lawsuit (regarding Mineral Title Ownership) so she told the O&G Company to look at the Lawsuit they had on file.

As of 2012 (or 2011), the O&G Company is no longer paying for Gas Production off the Oil & Gas Well's due to a leak/break in the line that runs from the Processing Plant to the Gas Purchaser (15 miles long) and it's too expensive to repair. They are suppose to pay Royalty Owner's either at the Gauge on the Well Head or when the Gas is delivered to the Plant (stated on O&G Lease). Recently, I noticed Gas Production shows a Disposition Code 3 (Processing Plant = Royalty Payment) but they refuse to submit RI Payment's on the Gas Production.