My Wife and I, plus several family members are soon to enter into a legal commitment for the payment of royalties that goes back a couple of years for oil produced and sold. On top of the past royalties we will be asking for interest due us. Does anyone have a % figure that is an industry standard?
Bob
What state are you in? Texas has codified the interest due on past payments as follows, and depending on what state you are in, there may be a similar statutory provision:
(a) If payment has not been made for any reason in the time limits specified in
Section 91.402 of this code, the payor must pay interest to a payee beginning at
the expiration of those time limits at two percentage points above the
percentage rate charged on loans to depository institutions by the New York
Federal Reserve Bank, unless a different rate of interest is specified in a
written agreement between payor and payee.
Good to know. Thanks Ben.
Sorry, these mineral interests are in Colorado.
Bob
See (4) below (I put it in italics):
COLORADO REVISED STATUTES*** THIS DOCUMENT REFLECTS CHANGES CURRENT THROUGH ALL LAWS PASSED AT THE FIRST REGULAR SESSION OF THE 68TH GENERAL ASSEMBLY OF THE STATE OF COLORADO ***
TITLE 34. MINERAL RESOURCES
OIL AND NATURAL GAS
ARTICLE 60.OIL AND GAS CONSERVATION
C.R.S. 34-60-118.5 (2011)
34-60-118.5. Payment of proceeds - definitions
(1) As used in this section, unless the context otherwise requires:
(a) "Payee" means any person or persons legally entitled to payment from proceeds derived from the sale of oil, gas, or associated products from a well in Colorado, but shall not include those interests owned by the state of Colorado.
(b) "Payer" means the first purchaser of oil, gas, or associated products from a well in Colorado unless the first purchaser has entered into an agreement under which the operator of a well has accepted responsibility for making payments to payees, in which case such operator shall be the payer.
(2) (a) Unless otherwise agreed pursuant to paragraph (b) of this subsection (2), payments of proceeds derived from the sale of oil, gas, or associated products shall be paid by a payer to a payee commencing not later than six months after the end of the month in which production is first sold. Thereafter, such payments shall be made on a monthly basis not later than sixty days for oil and ninety days for gas and associated products following the end of the calendar month in which subsequent production is sold. Payments may be made annually if the aggregate sum due a payee for twelve consecutive months is one hundred dollars or less.
(b) The payer and payee may provide, in a valid lease or other agreement, for terms or arrangements for payment that differ from those set forth in paragraph (a) of this subsection (2).
(2.3) Notwithstanding any other applicable terms or arrangements, every payment of proceeds derived from the sale of oil, gas, or associated products shall be accompanied by information that includes, at a minimum:
(a) A name, number, or combination of name and number that identifies the lease, property, unit, or well or wells for which payment is being made;
(b) The month and year during which the sale occurred for which payment is being made;
(c) The total quantity of product sold attributable to such payment, including the units of measurement for the sale of such product;
(d) The price received per unit of measurement, which shall be the price per barrel in the case of oil and the price per thousand cubic feet ("MCF") or per million British thermal units ("MMBTU") in the case of gas;
(e) The total amount of severance taxes and any other production taxes or levies applied to the sale;
(f) The payee's interest in the sale, expressed as a decimal and calculated to at least the sixth decimal place;
(g) The payee's share of the sale before any deductions or adjustments made by the payer or identified with the payment;
(h) The payee's share of the sale after any deductions or adjustments made by the payer or identified with the payment;
(i) An address and telephone number from which additional information may be obtained and questions answered.
(2.5) Upon written request by the payee, submitted to the payer by certified mail, the payer shall provide to the payee within sixty days a written explanation of those deductions or adjustments over which the payer has control and for which the payer has information, whether or not identified with the payment, and, if requested by the payee, such meter calibration testing and production reporting records that are required to be maintained by the payer in accordance with section 34-60-106 (1) (e). The requirement to provide a written explanation of deductions or adjustments shall not preclude the payer from answering the inquiry by referring the payee to the royalty clause or payment provision in a lease or other agreement.
(2.7) A payer who fails to provide information required or requested in accordance with subsection (2.3) or (2.5) of this section shall be subject to penalties as provided in section 34-60-121.
(3) (a) Compliance with the payment deadlines set forth in subsection (2) of this section shall be suspended when payments are withheld for a period of time due to any of the following reasons:
(I) A failure or delay by the payee to confirm in writing the payee's fractional interest in the proceeds after a reasonable request in writing by the payer for such confirmation;
(II) A reasonable doubt by the payer as to the payee's identity, whereabouts, or clear title to an interest in proceeds; or
(III) Litigation that would affect the distribution of payments to a payee.
(b) Any delay in determining whether or not a payee is entitled to an interest in proceeds shall not affect payments to all other payees so entitled.
(4) If a payer does not make payment within the time frames specified in subsection (2) of this section and such delay in payment was not caused by any of the reasons specified in subsection (3) of this section, the payer shall pay such payee simple interest on the amount of the proceeds withheld, which interest shall be calculated from the date of each sale at a rate equal to two times the discount rate at the federal reserve bank of Kansas City as such rate existed on the first day of the calendar year or years in which proceeds were withheld.
(5) Absent a bona fide dispute over the interpretation of a contract for payment, the oil and gas conservation commission shall have jurisdiction to determine the following:
(a) The date on which payment of proceeds is due a payee under subsection (2) of this section;
(b) The existence or nonexistence of an occurrence pursuant to subsection (3) of this section which would justifiably cause a delay in payment; and
(c) The amount of the proceeds plus interest, if any, due a payee by a payer.
(5.5) Before hearing the merits of any proceeding regarding payment of proceeds pursuant to this section, the oil and gas conservation commission shall determine whether a bona fide dispute exists regarding the interpretation of a contract defining the rights and obligations of the payer and payee. If the commission finds that such a dispute exists, the commission shall decline jurisdiction over the dispute and the parties may seek resolution of the matter in district court.
(6) The commission may assign to the parties the costs of any administrative proceeding pursuant to this section in such proportions as it deems appropriate and may award reasonable attorney fees and costs to the prevailing party. The moneys received by the commission to cover the costs of such administrative proceedings shall be transmitted to the state treasurer, who shall credit such moneys to the oil and gas conservation and environmental response fund created in section 34-60-122.
(7) As a prerequisite to seeking relief under this section for the failure of a payer to make timely payment, a payee shall give the payer written notice by certified mail of such failure and the payer shall have twenty days after receipt of the required notice in which to pay the proceeds, plus any interest due thereon, in accordance with the provisions of this section or to respond in writing explaining the reason for nonpayment.
(8) (a) Nothing in this section shall be construed to alter existing substantive rights or obligations nor to impose upon the oil and gas conservation commission any duty to interpret a contract from which the obligation to pay proceeds arises.
(b) Subsections (2.3), (2.5), and (2.7) of this section shall apply to payments of proceeds derived from sales occurring on or after July 1, 1998.
Thanks very much Ben.
Bob
Does anyone have the rules on interest rates for Oklahoma?
Relevant portions from Oklahoma Royalty Payment Statute:
ยง52-570.10. Payment of proceeds from sale of oil and gas production.
B. Except as otherwise provided in this section:
1. Proceeds from the sale of oil or gas production from an oil or gas well shall be paid to persons legally entitled thereto:
a. commencing not later than six (6) months after the date of first sale, and
b. thereafter not later than the last day of the second succeeding month after the end of the month within which such production is sold.
2. Notwithstanding paragraph 1 above, royalty proceeds from the sale of gas production from an oil or gas well remitted to the operator pursuant to subsection B of Section 570.4 of this title shall be paid to persons legally entitled thereto:
a. commencing not later than six (6) months after the date of first sale, and
b. thereafter not later than the last day of the third succeeding month after the end of the month within which such production is sold; provided, however, when proceeds are received by the operator in its capacity as a producing owner, the operator may pay the royalty share of such proceeds to the royalty interest owners legally entitled thereto at the same time that it pays the royalty proceeds received from other producing owners for the same production month, but not later than the last day of the third succeeding month after the end of the month within which such production was sold.
D. 1. Except as otherwise provided in paragraph 2 of this subsection, where proceeds from the sale of oil or gas production or some portion of such proceeds are not paid prior to the end of the applicable time periods provided in this section, that portion not timely paid shall earn interest at the rate of twelve percent (12%) per annum to be compounded annually, calculated from the end of the month in which such production is sold until the day paid.
2. a. Where such proceeds are not paid because the title thereto is not marketable, such proceeds shall earn interest at the rate of six percent (6%) per annum to be compounded annually, calculated from the end of the month in which such production was sold until such time as the title to such interest becomes marketable. Marketability of title shall be determined in accordance with the then current title examination standards of the Oklahoma Bar Association.
b. Where marketability has remained uncured for a period of one hundred twenty (120) days from the date payment is due under this section, any person claiming to own the right to receive proceeds which have not been paid because of unmarketable title may require the holder of such proceeds to interplead the proceeds and all accrued interest into court for a determination of the persons legally entitled thereto. Upon payment into court the holder of such proceeds shall be relieved of any further liability for the proper payment of such proceeds and interest thereon.
Ben,
Thank you for the information on Oklahoma Royalty Payment Statute. I really appreciate it.
Virginia
Novice question:
Are 'past/back royalties' and 'royalties held in suspense' the same thing?
Thanks in advance,
Wilson Inc
Back royalties are payments that have been held because they couldn't find a person to pay it to and usually the person can collect interested.
"Royalties held in suspense, is when the title has a problem that has to be corrected and the oil company can hold payment till it's corrected and no interest can be collected.
I'm not sure if this is true in all states, so you need to check your state rules on this.
In Texas would this situation be considered 'back royalties' or 'royalties held in suspense'?
My grandfater died in 1978. None of his heirs, including my mother , filed a deed showing they inherited his NPRI in west Texas because the only marginal gas well on the property produced far less income than the cost of making and filing the deed. My mother's last tiny royalty check from the NPRI was in 1985. She died in 2003 and we filed mineral deed to our inheritance in the NPRI at the county clerks office. In Dec., 2009, new oil wells were completed on the property and the operator only had information for my deceased grandfather and kept his production proceeds in his name. This year we dicovered the new production and contacted the operator. Is the royalty due us due with interest or not?
Thank you in advance.
Wilson,
Did you notify the operator of the change in ownership? If you did and they held the money from 2009 you are owed interest. If you didn't notify them, then you probably can't get any interest. You may ask for interest and the company may be nice and paid it. But, they don't have to.
Virginia Pflum,
The old wells on the property were plugged and abandoned in 1990. When our deed was filed there was no activity on the property so there was no operator to contact at that time and so I did not think about it anymore. I finally got curious earlier this year and found there was activity by looking up the property on the RRC website and then notified the opereator of the change in ownership.
Being a novice I have to ask: Is an operator of a new lease required to research county records to see if any changes in ownership have occurred? Or, do they just have to wait until they are contacted by the new owners?
Thank you for helping me learn.
Virginia Pflum said:
Wilson,
Did you notify the operator of the change in ownership? If you did and they held the money from 2009 you are owed interest. If you didn't notify them, then you probably can't get any interest. You may ask for interest and the company may be nice and paid it. But, they don't have to.
Wilson,
The company that took a new lease is the one that is required to do a title search and everyone who owns mineral interest would have to sign a new lease. Sounds more like you are owed back payment with interest.
They do have 6 months to produce the well before any payment is due. Have you signed a division order? That would be one of the first steps in getting payment. You need to go on the RRC website and see when the first oil or gas was sold. Then go forward 6 months. If it's over that time, call and ask for a division order and upon returning the division order attach a letter stating it's been over 6 months and you want interest. To read TX time limits and payment go to section 91.402 for the code. If I remember right, it's 2% over % rate on a loan by Fed. Reserve bank.
Virginia Pflum,
I should probably reword my question just to make sure of the answer.
Is an operator of a new lease required to research county records to see if any changes in ownership of NPRI owners (which is what I am in this case) have occurred? Or, do they just have to wait until they are contacted by the new NPRI owners?
Thanks again for your help.
Virginia Pflum said:
Wilson,
The company that took a new lease is the one that is required to do a title search and everyone who owns mineral interest would have to sign a new lease. Sounds more like you are owed back payment with interest.
They do have 6 months to produce the well before any payment is due. Have you signed a division order? That would be one of the first steps in getting payment. You need to go on the RRC website and see when the first oil or gas was sold. Then go forward 6 months. If it's over that time, call and ask for a division order and upon returning the division order attach a letter stating it's been over 6 months and you want interest. To read TX time limits and payment go to section 91.402 for the code. If I remember right, it's 2% over % rate on a loan by Fed. Reserve bank.
I hear it's called SB-168. 12% for their fault 6% if yours for being late
Robert,
They have 6 months from the date of the first oil or gas that is sold. You will need to know when the first oil or gas was sold. Check with OCC on this and ask for the name & # of the purchaser.
405-521-2613, you will need the legal, like section, township, name of well, etc.
Then it's 12% per year, but if the title isn't clear it's 6%.
Once you find out when the first oil was sold, then write the company a letter asking for the interest. Making a phone call won't do it.