Texas -- take a non-producing royalty interest with a term (in years, plus as long thereafter as oil/gas production occurs). Say the term expires June 30, 2013. What has to occur to extend that royalty? I mean, it's production, obviously... but what exactly is the legal situation... how does the owner know his rights are extended? Reporting by operator of production to the RRC? If so, that could take many months before it shows up on RRC. If they produce the well and store it in tanks and later sell it, could you get an affidavit saying you know that it flowed on such and such a day? Heck, you'd have to have a spy out there with a video camera. If, say, in December, 2013, one received a royalty check for June 2013 production (as per the check stub), is that enough to bank on the term royalty being extended?
Two questions- what does your lease say and what does the instrument that created the term instrument say? Check the instrument that created your term interest first. Does it define what production is? If it doesn’t, then production may be defined as the lease defines it.
@Wade... The doc that created the term royalty does not define production. Another person owns the executive right to lease. And I am not aware of a lease defining production in the base form. Have you ever seen a lease define production? Perhaps in an addendum. I don't think I've ever seen one define production such that what is needed here and this one doesn't. I mean, I may have seen them define production in paying quantities but this is a term royalty, a unique situation apart from lease / development concerns. Question being, what is "proof" of production for the term royalty. And if the answer is official reporting to the RRC, that might take a year before it shows up! Weird.
This brings to mind... in Texas, before the production shows up on the RRC site as monthly production, they might have hauled some oil out of the site during testing. I would think that for a well that ends up being "in paying quantities," that this test oil, as of the first producing day, would extend the term royalty. And so, the question arises, do you put a spy out there or what? I mean, this deadline (and hopeful extension) is mighty important in this instance!
Too many questions to answer in one post. However, yes, I was aking if there was a paying quantities clause in the lease. Also, look to see if there is a continous operations clause in the lease, as it may allow them to stop producing for periods of time but still be considered "producing" for purposes of your instrument. In short, the terms of your lease will likely be considered heavily in determining whether your minerals are still "producing", unless the instrument which created your term royalty had its own definition of "producing". Did you sign a lease ratification?
As for catching them making false production reports, one way is to find the contract hauler, if they are hauling by truck, and talk to the drivers or get the records. You almost have to find out what day they normally pick up loads and camp out there. I have heard of people putting up game cameras to photo who comes to the well and when. It is also a good way to lose a game camera.
Wade:
Game cameras (great thought) are still cheap compared to a truck load of oil. The problem is that it isn't easy to find a good place to put a camera around the loading tank battery; but, there are usually some good locations between the tanks and the property entry way. There are some new cameras out now that have and IR flash that is hard to see. Of course, we are taking pictures of hogs and deer, not spying on truck traffic, right!
Wade Caldwell said:
Too many questions to answer in one post. However, yes, I was aking if there was a paying quantities clause in the lease. Also, look to see if there is a continous operations clause in the lease, as it may allow them to stop producing for periods of time but still be considered "producing" for purposes of your instrument. In short, the terms of your lease will likely be considered heavily in determining whether your minerals are still "producing", unless the instrument which created your term royalty had its own definition of "producing". Did you sign a lease ratification?
As for catching them making false production reports, one way is to find the contract hauler, if they are hauling by truck, and talk to the drivers or get the records. You almost have to find out what day they normally pick up loads and camp out there. I have heard of people putting up game cameras to photo who comes to the well and when. It is also a good way to lose a game camera.
Actually, the camera idea is problematic. Not owning surface, I would be trespassing. And even if you got a picture of a truck hooking up to a tank, you couldn't prove oil was hauled out of there unless you got an affidavit by the truck driver. It just seems odd that we are even discussing this, versus something "official" happening with production reporting. I mean, in title issues, chain of title, third parties are looking at documents in the conveyance records and the RRC reporting, right? Title is what is reflected in the public record, right?
What kind of form does Texas require for hauling oil out during completion testing? I assume that they are always required to have clearance to do this. And that, thus, it is documented in the public record (RRC).
The royalty deed does not say "in paying quantities," it says "and as long thereafter as oil, gas or other minerals are produced from said land." Although, this issue is largely moot. Because if it isn't in paying quantities, it isn't worth anything anyway.
Crazy situation here.
Obviously, you are thinking too logically and if you don't own the surface the camera is out for sure. Again, you are correct in that this is a crazy situation that should never be an issue. Just one of many data gathering pieces of information that might help when the time comes.
Neverybilly said:
Actually, the camera idea is problematic. Not owning surface, I would be trespassing. And even if you got a picture of a truck hooking up to a tank, you couldn't prove oil was hauled out of there unless you got an affidavit by the truck driver. It just seems odd that we are even discussing this, versus something "official" happening with production reporting. I mean, in title issues, chain of title, third parties are looking at documents in the conveyance records and the RRC reporting, right? Title is what is reflected in the public record, right?
What kind of form does Texas require for hauling oil out during completion testing? I assume that they are always required to have clearance to do this. And that, thus, it is documented in the public record (RRC).
The royalty deed does not say "in paying quantities," it says "and as long thereafter as oil, gas or other minerals are produced from said land." Although, this issue is largely moot. Because if it isn't in paying quantities, it isn't worth anything anyway.
Crazy situation here.