Does anyone know what shut in royalties are and how to calculate them?
I think shut in royalty is when your well has been producing and for some reason (maybe pipeline troubles) the gasco decides to stop production but wants to keep the lease active. There should be some wording in the lease about a payment of $X per month or per quarter etc as shut in royalty. When the problem was resolved, the production starts again and you are paid for gas or oil produced again.
As I said, it should be in the lease. If you are negotiating a lease, this is something to pay attention to.
Nancy more or less defined shut-in royalties. Wells are often shut-in from time to time whether it is before they start producing waiting on infrastructure, to service the well, to wait for higher commodity prices, etc. A typical shut-in royalty would read that after x amount of days (ex. 90) the Oil Co. would owe you x dollars per acre per year. While you can make a little bit of money from a $5-50 per acre per year of shut-in royalties, the most important part of this in my opinion is limiting the shut-in term for a certain amount of time (ie 2 years total). This limits the Oil Co. for shutting in your well, thus holding your lease in perpetuity for $5 an acre a year.
If you already have a lease, it should say in there how much per acre, per year you are due if the well is shut-in for a certain period of consecutive or non-consecutive days. You would just multiply the amount by the net mineral acres to come up with the amount owed. I hope this helps.
Thanks! I have not even seen the lease yet. I just got a call last week saying I own mineral rights. The guy said something about them owing me “shut-in” royalties because they are having trouble with a pipeline. I’m going to have an attty. look over everything for me tomorrow. There are two wells in my “pool” but I don’t think either one is producing yet.
Kim,
To me, it sounds like something fishy is going on here.... If you haven't seen the lease, it means you likely have not signed the lease (unless a relative or predecessor in title signed a lease you inherited somehow). That being said, if you own mineral rights and have not signed a lease, it means you likely own a non-executive mineral interest, which means you should have probably been paid a bonus of some sort. I would definitely have "the guy" send you the lease along with the reservation deed where your interest comes from and have your attorney look it over. Best of luck.
No. I have not signed the lease yet nor has my sister who I share the mineral rights with. We were offered a “bonus” of $1000 per acre with 25% royalties. This guy, Rusty, is with Petro Hawk or a contract worker for Petro Hawk. Thanks for the info. about the reservation deed. My attorney and I are going to look over the lease today. Thank You all for your input.
Kim, I agree with Texas Tea, that something unusual is happening here. I would also like to point out that a predecessor in title need not have signed a lease, sometimes the operator /lessee simply fails to find or neglects to contact a mineral owner, after all, if the well is dry, they can just cap it and stop looking, having saved the bonus money, landman and legal costs.
Pay careful attention to the shut in clause because the well could be shut in for some years, maybe decades. The operator may need to cross someones property that does not want a gathering pipeline across their property or many other scenarios. Make sure the shut in clause has a cumulative time limit dating back to the initial test.
Just because you were just contacted does not mean the well has not been shut in for 5 years already.
Kim, you probably already know better but don't cash any checks until you have seen the lease.
There should be no need to hurry, you are not holding anything up, make sure you have full information to make your decision before signing anything.
It’s also worthwhile to define the circumstances in which a well is considered “shut-in” and therefore trigger the right of the Lessee to maintain the lease by payment of shut-in royalties. I’ve seen wells drilled in the Haynesville Shale that have been “waiting on completion” for over 18 months, when the reality is that the operator is waiting for gas prices to improve before bringing them online. There has been some posturing by operators who indicate they consider those wells “shut-in,” citing market conditions. At least in Louisiana, I think that argument is a clear loser, but it can’t hurt to nip such an argument in the bud with you lease.
I agree that the most important aspect of the shut in clause is adding a limitation on how long the payment of shut-in royalties will maintaining a lease. The actual shut-in royalties are usually token payments in terms of size, they’re nice to have while your lessee tries to bring your gas to market, but not for 50 years…
Normally, they are x$ per acre per quarter or per year. You also want a cap on how long they can pay shut in royalties and keep the lease. You also want them paid at the beginning of the period instead of the end.