In this episode we talk about what you should do if your operator is late paying you royalties including statutes around timing for royalty payments in Texas, Oklahoma, New Mexico, and Colorado and when you should be paid interest.
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Knowing Your Rights
In this episode we talk about some of the challenges faced by royalty owners in resolving missing or late royalty payments. In order to protect your rights, you first need to know what they are. Many states with a significant amount of oil & gas production have codified the timing requirements for payors (oil and gas companies) to pay royalty owners. From the timing for paying royalties once a new well starts producing to when (and how much) interest should be paid to royalty owners if the time limits are not met, state laws often dictate the responsibilities of payors.
By having a working knowledge of the statutes in the state where your royalty interests are located, you can make sure you are taking the necessary steps to protect your rights, such as giving written notice by mail as a prerequisite to beginning legal action for nonpayment.
Valid Reasons for Nonpayment
And while it is easy to point the finger at the operator for nonpayment of royalties, there can be valid reasons you aren’t getting paid.
Contract agreements such as operating agreements or oil and gas leases with different payment terms might affect the timing for which the operator must pay royalties. Be sure to read your oil & gas lease and get help from a qualified attorney if you have questions about whether or not you are owed interest on any late payments.
Typically, if there are title issues (e.g. interest is still in your relative’s name and their estate has not gone through ancillary/foreign probate in the state where the oil & gas interests are located), the operator will place the payments in “suspense” pending resolution of title to ensure they don’t pay the wrong person.
Another reason you might not be receiving regular royalty payments is your interest is too small to meet the minimum payment threshold. In this situation, the operator may be accruing royalties owed to you until it reaches that minimum payment threshold for them to cut a check.
If one of these legitimate reasons is throwing a wrench in you receiving royalties, you probably aren’t owed interest on that money. For example, in the Texas Natural Resource Code Sec. 91.402:
Payments may be withheld without interest beyond the time limits set out in Subsection (a) if:
(1) there is:
(A) a dispute concerning title that would affect distribution of payments;
(B) a reasonable doubt that the payee:
(i) has sold or authorized the sale of its share of the oil or gas to the purchaser of such production; or
(ii) has clear title to the interest in the proceeds of production; or
(C) a requirement in a title opinion that places in issue the title, identity, or whereabouts of the payee and that has not been satisfied by the payee after a reasonable request for curative information has been made by the payor; or
(2) the payments are subject to a child support lien under Chapter 157, Family Code, or an order or writ of withholding issued under Chapter 158, Family Code.
(b-1) A payee does not have a common law cause of action for breach of contract against a payor for withholding payments under Subsection (b) unless, for a dispute concerning the title, the contract requiring payment specifies otherwise.
(c)(1) As a condition for the payment of proceeds from the sale of oil and gas production to payee, a payor shall be entitled to receive a signed division order from payee. . .
Texas Natural Resources Code Sec. 91.402
In other words, if the interests are located in Texas and if there is a dispute as to who the rightful owner is, if you don’t have clear title to the property (e.g. you haven’t gone through ancillary probate in the state where the interests are located to transfer ownership to you), or if you haven’t returned a signed Division Order, payments may be legally withheld without interest.
Payment Timing
The timeframe in which the operator must pay you royalties (especially on a new well) can vary significantly from state to state. For example, in Oklahoma, the payor generally has six months after the date of first sale and thereafter not later than the “last day of the second succeeding month after the end of the month within which such production is sold.” Colorado has very similar requirements.
However, in Texas, royalties for oil and gas production are due 120 days after the end of the month of first sale, and subsequent royalties are payable 60 or 90 days after the end of the month in which production is sold. However, operators are not obligated to make timely payments if there is a title defect or question about the whereabouts of the payee or if the royalty owner declines to sign a division order.
Since the timing requirements and reasons for payors to legitimately withhold royalty payments without owing you interest can vary from state to state, be sure to check the statutes in the state where you have royalties for more information. Also, if you run into an issue or if you need assistance, be sure to contact an attorney licensed to practice in the state where your royalty interests are located.
Summary
In conclusion, this episode provides an overview for royalty owners to navigate the process of identifying and claiming any late royalty payments (and any interest that might be owed). It is important to be proactive, understanding state laws, and utilize available resources to ensure timely and accurate payment of royalties so you can make the most of your interests. As always, this is being shared for informational purposes only and should not be construed as legal or financial advice.
Resources Mentioned in this Episode
Other Resources
- MRP 16: What You Need to Know about Oil & Gas Division Orders
- MRP 166: How to Read and Manage Your Royalty Statements
- MRP 203: How to Navigate Inheritance Issues with Minerals and Royalties
- MRP 218: Listener Q&A – Mineral Owner Education, Claiming Missing Royalties, What Company Should Pay Me, and More!
- Texas Natural Resources Code
- 2014 Oklahoma Statutes Title 52. Oil and Gas §52-570.10. Payment of proceeds from sale of oil and gas production.
- 2006 New Mexico Statutes – Section 70-10-4 — Interest on late payments.
- Colorado Revised Statutes Title 34. Mineral Resources § 34-60-118.5. Payment of proceeds-definitions
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