What is going on with our oil royalties?

They found oil on some property owned by my family. The horizontal well started out producing 156 BOPD and some natural gas. That was the rate filed with the OCC on the wells completion. Each month the royalty check is less. After 6 months it's down to almost nothing. The royalty being paid is less then a yearly average of $30 an acre. When my brother called to ask about it he was told that a bit broke while drilling the well and that's why the production has fallen so dramatically. He was told they might drill again in the future but that there were no immediate plans to do so. What about the mineral lease on the property? Do they still have to pay the mineral lease or do they get to hold on to it since there is a well that has malfunctioned but is putting out some oil. We think the oil is there, they just aren't taking it out of the ground.

This doesn't make sense to me. The mineral lease was paying a lot more then the Royalty Check is paying now.

At the OCC web site I found an engineers drawing that shows 3 horizontal shafts. The middle one about half as long as the ones on either side of it. Can anyone tell me what this means?


First, all wells normally have a decline curve from the initial production where the production gets less over time. In your case, it sounds like downhole problems have occurred which has made a direct impact on the production. They will still have to pay you royalties for any oil sold from the lease but if this well is down for a time, you will have read your lease terms for the answer to this question. If you have a "pugh clause" in place, you would be able to lease additional zones on your mineral acreage. Your lease wording could be such that this mineral acreage is held by production since a well has been drilled. Again, the wording in your lease is the key.

Nancy, I agree with what Charles says but I might explain in different terms. There is usually considerable pressure down where the wellbore is and this natural pressure will push the hydrocarbons up well over a mile without use of a pump for a period of time. The pressure naturally declines as the hydrocarbons are produced. Each well is different in how long this period lasts. It is sometimes called flush production and is a heady time because usually it's the best the well will ever produce and a well could produce as much as 20% to 30% of the wells total production for it's life in the first year or two. After this period of flush production ends the decline can be rapid. An initial production of a few hundred barrels or more per day can look very good even with a relatively few acres but when production drops below 100 barrels per day and 75% to 80% of those belong to the lessee who owns your lease, if you don't have a large amount of acres your royalty may not amount to a great deal. You are most likely held by production with this well and the operator will keep producing from it as long as possible because it is the only way other than selling the well to someone else to recover their cost of drilling. As noted above, you are also held by production by this well and that allows the operator to wait to drill another well or even to sell your lease to someone else in the future to recoup their costs and make a profit. Nancy, the sad thing is there is very little you can do at this point but wait to see what happens, whether the operator works on the well to improve production, drills another well or sells to someone else who may do those things. I never count on royalty from a well, the price of oil changes and that affects royalty and some wells I have looked at have been in operation for years and have never produced a full 30 day month. Be happy if you get a royalty check but don't count on them. I believe that many people, if they understood how little they were likely to gain from leasing that they would not lease and choose to leave it in the ground, or possibly choose to sell entirely to not be bothered in the future by such small amounts. As Charles mentioned, you can check your lease for pugh and depth severance clauses, if you have them you may not be totally done with leasing. I wish you good luck with your minerals.

. . . to sum it up, " We hope you didn't quit your day-job" . . .

Operator is probably crying harder than you; they'll likely never break even on what it cost to put the well in. Very unlikely they'll 'make that mistake' again (drill another well here) - they'll pack-up and head for more fertile grounds. You'll probably be HBP for the next 30 years, or longer . . .

You'll probably be HBP for the next 30 years, or longer . . .

Our family trust has 360 acres. Does HBP mean that they get the lease on every acre of the property for the amount of a meager royalty check?

Possibly, if you did not have a clause in your lease releasing acres not currently being produced, they have them all with just the one well.

Nancy Williams said:

You'll probably be HBP for the next 30 years, or longer . . .

Our family trust has 360 acres. Does HBP mean that they get the lease on every acre of the property for the amount of a meager royalty check?