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Question
The company that has acquired my lease from another company to produce in the east Texas Haynesville Shale completed multiple wells for my family with first production in January 2012.  First sale of gas according to drillinginfo was january 2012.  We have yet to get royalty payments.  My lease states that if payments of royalties do not commence within 90 days of the first sale of oil or gas the royalties are deemed delinquent.  The next clause states that if the payments remain delinquent for longer that 180 days then "such lease shall terminate as to all rights or ownership of lessee including rights to produce, etc." If in fact the first sales were made in january, that time is up according to my calculations.  The wells have procuced continuously with royalties owed of more than a miilion dollars.  What options are available.  Can the lease be renegotiated?  Does Production stop?  We finally got w-9 forms to sign 3 weeks ago but no division orders or no royalty checks. I am at a loss to understand why they would let it go so long.  They must know something that I don't know.  Thank you so much for your time.

Answer
Most states have statutes requiring companies to begin paying within six months of first production. Most states also require some sort of "penalty interest" to be paid on any sums deemed late as per statute (in Oklahoma it's as high as 12%)

Your lease may in fact "trump" any applicable statute however (check with an attorney.) At any rate, you'd have to take them to court to enforce the terms of your lease, and they're probably just betting that you either won't take them to court or that a judge would agree to give them a "reasonable" amount of time to pay you prior to ordering the lease cancelled.

It's likely they are just overwhelmed in their division order department and haven't gotten yours ready yet. I'd call them and see what the holdup is. Frankly, with the kind of income I'd just sit back and accrue any interest due by state statute. I've got at least two wells in that situation currently (i.e. well started producing more than six months ago but I haven't been paid or received a DO yet.)

As to whether your lease could be renegotiated or whether you could force them to stop production or not, that would be up to a judge to decide.

Hope this helps you out.
Frederick M. "Mick" Scott CMM RPL
www.mineralhub.com
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Frederick M. Scott

Expertise

Oil and gas leasing, lease negotiations, how to best deal with the oil and gas companies or their representatives, buying/selling mineral rights, forced-pooling, correlative rights, deeds and conveyances, and "post-production" costs. I am most experienced with Oklahoma properties and laws, but am able to answer questions concerning other oil and gas producing states in many cases.

Experience

I am a Certified Professional Mineral Manager (CMM) certified by the National Association of Royalty Owners (NARO) in Tulsa, OK. I am also a Registered Professional Landman (RPL) with the American Association of Professional Landmen (AAPL). I have managed my family's oil and gas properties in Oklahoma for over 10 years and have dealt with many landmen, title analysts, attorneys and other oil and gas professionals in the process. I have written several articles which have appeared in various oil and gas industry magazines and newsletters. I have negotiated and drafted leases, prepared deeds, affidavits, and other legal instruments relating to my own minerals, as well as performed title, legal research, and curative work for same. I have acquired a good deal of knowledge on the subjects of oil and gas law, mineral appraisal, and landwork over the past ten years, and also worked as a professional landman and lease buyer for a time. I've seen the business from "both sides" and therefore feel confident I can help out most of the folks who ask questions in this forum.

Organizations
National Association of Royalty Owners (NARO); American Association of Professional Landmen (AAPL)

Publications
National Association of Royalty Owners "Action Report" (ROAR); NADOA Magazine, The Mineral Hub, Landman Magazine, and several royalty owner association group's newsletters.

Education/Credentials
Certified Mineral Manager (CMM), Registered Professional Landman (RPL)

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