You are here:

Oil/Gas/lease

Advertisement


Question
QUESTION: Marsha. I signed a lease 8/14/12 Tyler County West Virginia for 28,833.75 paid in advance production started 3/20/14. Jay Bee oil wants about 24,000 back. They are now not sending royalty checks and keeping royalty money. I paid taxes on 28,000 in 2012. My lease says If a well is drilled prior to the yearly anniversary, then the unused advance rental paid in advanced will be credited toward the royalty payments. If a well is drilled in year five then there will be no deductions from royalty payments.

ANSWER: The most important piece of information I need is the reason the Lessee wants you to pay back the $24,000.  The most common reason that a lessee will ask for money back that was paid when a lease is signed is when the Lessor's title fails.  If your title failed, and your lease contains a general warranty clause, that clause allows the Lessee to ask for repayment of money paid to you if it turns out that you didn't really own all of what you think you own.  My best advice to you is that you seek the advice of a West Virginia attorney.  It is remotely possible that the Lessee can file a lawsuit against you to recover the $24,000, so an attorney can help you navigate through this.

---------- FOLLOW-UP ----------

QUESTION: This is the reason I have to pay it back. I signed If a well is drilled prior to the yearly anniversity,then the unused advanced rental will be credited toward to the royalty payments. If a well is drilled in year five then their no deduction from royalty payments. thanks for for answer CAN TYEY DO THIS HARRY THANKS AGAIN

Answer
Yes, it appears that they can do this, based on what you have told me.  It sounds like the terms of your oil and gas lease allows them to convert the advance rental payments to advance royalty payments, and recoup them since a well was drilled prior to Year 5.  They are only allowed to recoup the amount of the annual rental for the rental years of Year 2, Year 3, and Year 4 depending on which of those years the well was drilled prior to Year 5.  It appears that you agreed to allow them to do this when you signed the lease.  However, they still have to send you settlement statements each month showing how much you would have been paid, that went toward recouping the $24,000 in rental payments.  Make sure they send those to you each month so they don't recoup beyond what you owe them.

Also, talk to a CPA about whether you can file a revised IRS and State tax return to remove the $24,000 income for the year it was reported, now that you are re-paying it--it has been converted from income reported in the year it was received, to now being a debt which you owe in subsequent years.  A CPA should be able to help you get that part straightened out correctly.

Oil/Gas

All Answers


Answers by Expert:


Ask Experts

Volunteer


Marsha Breazeale, M.Ed., CDOA, CPLTA

Expertise

All questions regarding division orders; ownership decimal calculations; title ownership and payer record changes (testate/intestate inheritance; deed; assignment; court order); oil and gas lease analysis for record-keeping and purposes of payment by operator or payer; pooling, horizontal wells, horizontal well allocation units; unclaimed property reporting; royalty owner relations questions. All questions concerning administration of surface land contracts and payment questions, such as for Surface Right-of-Way, Sub-Surface Right-of-Way, Easement, Surface Use Agreement. All questions regarding industry-standard and company-specific policies that affect land owners.

Experience

Sr. Staff Division Order Analyst. Certified Division Order Analyst (CDOA, National Association of Division Order Analysts) and Certified Lease Analyst (CPLTA, National Association of Professional Lease and Title Analysts) with 35 years of experience as a combination division order analyst and lease analyst in exploration and production in the oil and gas industry.

Organizations
National Assoc. of Division Order Analysts (NADOA), National Association of Division Order Analysts (NALTA), American Association of Professional Landmen (AAPL), American Society of Trainers and Developers (ASTD)

Publications
"How an Oil & Gas Exploration & Production Company Operates" and "Principles of Oil & Gas Lease Analysis: Standard Clauses", Oil Patch Press; Articles in NADOA Magazine; LandFocus EDU Professional Training Manuals

Education/Credentials
B.A.in Management from Our Lady of the Lake University in San Antonio; M.Ed. in Instructional Design from WGU Texas.

Past/Present Clients
Past 15 years: GeoSouthern Energy Corporation; Contango Oil Co./Crimson Exploration & Operating Inc.; Apache Corporation; BP America; Marathon Oil; Newfield Exploration

©2016 About.com. All rights reserved.