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General Information Pertaining to Leases and Royalties

This outline is provided as an informal guide to members of the public seeking information or legal services the Railroad Commission CANNOT provide. Since the Texas Legislature has given the Railroad Commission limited authority to regulate the oil and gas industry in Texas, our staff cannot advise you in all oil and gas matters. Areas over which the Railroad Commission has no authority include lease and royalty matters (including leasing, payment of royalties and the right to receive royalties), the financing of or investment in oil and gas activities, and bankruptcy.

LEASES AND ROYALTIES

If you have questions about an existing lease or royalty agreement, you may find the information you seek in the courthouse of the county where the land is located. Usually a call to the courthouse can help you determine if any of the documents on file there are what you want.

The Commission maintains records regarding the reported production and disposition for all oil and gas produced from wells in the State. This information may be helpful in determining your interests. Additionally, the Commission also maintains records regarding the permitting of wells. If you have internet access you can obtain all reported production information from January 1993 to present and any online permitting records at the Commission's website www.rrc.state.tx.us. There is no charge for access to these records. If you require production records from earlier than January 1993, or if you require historical permitting records filed for a well that are not available on-line, you will need to contact the Commission's Central Records department at (512) 463-6882. For a small charge you may obtain copies of any records maintained in the Central records department.

To obtain production information on-line, you will need the RRC Identification Number for the well, a five digit number for oil wells or a six digit number for gas wells. This identification number is required to be posted at the entrance to the property where the well is located. This identification information may not be the same identification number used on any payment stub or other documentation received by a royalty interest owner. If you do not have the RRC well identification information, you may require further assistance to identify the wells to access the information available through the Commission's on-line database system. To access production information, start at the home page, go to the Data & Statistics/Online Research (Queries) and click on production data query to get access to the Commission's on-line database for these records.

To obtain drilling permit information on-line, start at the home page, go to the Data & Statistics/Online Research (Queries) and click on drilling permit query to get access to the Commission's on-line database for these records. By entering the drilling permit number, you can review the documents filed with the drilling permit application. You can search the Commission's on-line drilling permit database if you do not know the drilling permit number. Drilling permit records include plats and other documents designating the acreage in a pooled unit.

The State Comptroller oversees the payment of oil production taxes. Producers, first purchasers and subsequent purchasers all must file certain reports with the Comptroller. These reports outline in detail the amount of oil and gas produced monthly, counties and leases where the oil was produced, the price received or paid for the oil, and other information. If you think this information would be helpful you should contact:

State Comptroller L.B.J. State Office Building 111 E. 17th Street Austin, Texas 78701

(512) 463-4000 (800) 252-1384

The L.B.J. Building is located directly south of the William B. Travis Building.

We have links to various statutes outlining the rights of royalty owners. These statutes can be found in the Texas Natural Resources Code, TEX. NAT. RES. CODE ANN. . Sections 91.401 to 91.406 of the Natural Resources Code concern the timely payment of royalties. Note that '91.406 provides for minimum damages and recovery of attorney's fees in a successful action to recover past due payments. Section 91.501 to 91.506 of the Natural Resources Code outline the information to which royalty owners are entitled from their payor. The Railroad Commission cannot intervene in royalty matters. If you would like the names of experienced oil and gas attorneys in your area, the State Bar of Texas has a lawyer referral service and can provide a list of lawyers board certified in oil and gas law. Their address is:

State Bar of Texas P.O. Box 12487 Capitol Station Austin, Texas 78711

(800) 252-9690

The Railroad Commission cannot advise you whether you should enter into a lease or any other agreement, or whether an operator is in compliance with the terms of a lease. Since these are private contractual matters, you may want to consider contacting an experienced oil and gas attorney.

UNCLAIMED PROPERTY

If you have a question about unclaimed royalties or other oil and gas proceeds, you should contact the Comptroller of Public Accounts. The Comptroller operates and maintains the Unclaimed Property Fund and they have listings of unclaimed property by owner name. The staff will help you research particular names and the property involved. That address is:

Comptroller of Public Accounts Unclaimed Property Division P.O. Box 12019 Austin, Texas 78711-2019

(512) 463-3040 (800) 321-2274 (out-of-state) (800) 531-5441

The Comptroller of Public Accounts is located at 111 E. 17th St., Austin, Texas 78701.

A person who tells a potential claimant about property that is reportable to the Comptroller or that is in the possession of the Comptroller may not charge a finders' fee which exceeds 10 percent of the value of the property. If the property is mineral proceeds, the fee may not include a portion of the underlying minerals or any production payment, overriding royalty, or similar payment. Tex. Prop. Code Ann. '74.507. (Please note that as of September 1, 1996, the duties of the State Treasurer were transferred to the Comptroller of Public Accounts.)

INVESTMENTS

The Federal Securities and Exchange Commission and the State Securities Board may require the registration of certain investment offers. Although some offers are exempt from registration with these agencies, you can check on registrations by contacting:

Securities and Exchange Commission 801 Cherry St., 19th Floor Fort Worth, Texas 76102

(817) 978-3821

State Securities Board P.O. Box 13167 Capitol Station Austin, Texas 78711

(512) 305-8300

The State Securities Board is located at 200 East 10th St., 5th floor. The State Securities Board has an enforcement section that may be able to address your complaints regarding particular investment offers.

Additionally, corporations and limited partnerships must register with the Texas Secretary of State before lawfully conducting business in Texas. You may contact:

Secretary of State Corporations Division P.O. Box 12697 Austin, Texas 78711-2697

(512) 463-5555

The Secretary of State is located in the James Rudder Building at 1019 Brazos Street.

As with leases and royalties, the Railroad Commission cannot advise you of the soundness of a particular investment or help you recover your investment.

ROYALTY PAYMENT REQUIREMENTS IN TEXAS

Do you know your responsibilities under the law?
Sections 91.401(2) and 91.501

As a working interest owner in a well or property, you have the responsibility to pay or cause to be paid any royalties due under the lease agreement from which you derived your working interest. This is true even if you are not the operator of the well or property. You can cause the royalty to be paid by entering into an agreement with the operator or purchaser of production to pay the royalties on your behalf. The purpose of this brochure is to provide you with basic royalty payment information to help you pay royalties timely. Remember it is through the cooperation of the mineral owner and the working interest owner that oil and gas is produced.

The requirements covered in this brochure are outlined in the Texas Natural Resources Code Section 91 Subchapters J and L.

These requirements include:

    • When to pay royalties, when royalties can be suspended, and what interest rate to pay when interest is due
    • What should be reported with a payment
    • The statutory components of a division order
    • What kind of notice to provide royalty owners when you buy a working interest or when the payor changes
    • What information a royalty interest owner can request

WHEN TO PAY
Section 91.402(a) and (f)

Initial payment

    • 120 Days after end of month of first sale

Ongoing payments

    • 60 days after end of calendar month in which oil production sold
    • 90 days after end of calendar month in which gas production sold

Payments must be paid when the payment reaches $100, or

    • If payments do not reach $100 within 12 months and are greater than $10, the aggregated amount must be paid
    • Amounts that do not aggregate to $10 must be paid upon the sale or plugging of the property or at the owner's request
    • If an owner requests payment more frequently, only aggregate to $25

WHAT YOU HAVE TO REPORT WITH A PAYMENT (amended effective 9/1/2002)
Section 91.502

    1. Property Identification (Name, Number, or both; and County and State)
    2. Sales month and year
    3. Volume sold
    4. Price per barrel or Mcf
    5. Severance or other taxes deducted
    6. Windfall profit taxes (repealed 1989)
    7. Other deductions or adjustments
    8. Net value
    9. Owner decimal interest
    10. Owner gross value
    11. Owner net value
    12. Address and phone number where additional information can be obtained

ROYALTY OWNER REQUESTS
Section 91.404(b)

If a royalty owner notifies you in writing of failure to make timely payment, you must either make payment or respond in writing within 30 days of receipt of the notice.

Section 91.504 (amended effective 9/1/2002)

Requests sent by certified mail for information regarding itemized deductions, adjustments, the heating value of gas, or the Railroad Commission of Texas identification number for the lease, property, or well must be responded to within 60 days of receipt of the request.

Section 91.505 (amended effective 9/1/2002)

Additional requests sent by certified mail for information not covered by Section 91.504 must be responded to within 30 days of receipt of request.

CHANGE OF PAYOR
Section 91.407 (a), (b), and (c)

If there is a change of payor, the new payor must notify the payee in writing of the change at the payee's most recent known address. The notice must include property name and number, effective date (month and year), and payor's address and phone number.

A division order, check detail, or other written communication that includes all of the above information will satisfy this requirement.

BUYING A WORKING INTEREST

See "Change of Payor." When buying a working interest, you should determine who will pay the royalties due and ensure that the notice of the change of payor will be provided as required.

SUSPENDING PAYMENTS
Section 91.402(b) and (f)

Payments can be suspended without interest (provided the lease does not provide otherwise) if:

    • A dispute concerning title exists that would affect distribution of payments
    • A reasonable doubt exists that the payee has sold or authorized the sale of its share of the oil or gas to the purchaser
    • A reasonable doubt exists that the payee has clear title to the interest in the proceeds of production
    • A title opinion requirement placing the title, identity, or whereabouts of the payee at issue remains unsatisfied after a reasonable request for curative has been made.
    • Payments are aggregated as provided by statute

WHEN INTEREST IS DUE
Section 91.403 and 91.407(d)

Late payment interest is due at a rate of 2 percentage points above rate charged on loans to depository institutions by New York Federal Reserve Bank when:

    • Payment is late and the title is clear
    • Payment is late, a division order is offered that does not comply with statutes, and the division order is not signed

Late payment Interest is due at a rate of 4 percentage points above the rate charged on loans to depository institutions by the New York Federal Reserve Bank when:

    • Payment is late and notice that you are the new payor has not been provided

ANNUAL NOTICE TO ROYALTY OWNERS (effective 9/1/2002)
Section 91.504(e)

At least once every 12 months, a payor shall provide the following statement to each royalty interest owner to whom the payor makes a payment:

Section 91.504, Texas Natural Resources Code, gives an owner of a royalty interest in oil or gas produced in Texas the right to request from a payor information about itemized deductions, the heating value of gas, and the Railroad Commission of Texas identification number for the lease, property, or well that may not have been provided to the royalty interest owner. The request must be in writing and must be made by certified mail. A payor must respond to a request regarding itemized deductions, the heating value of gas, and the Railroad Commission of Texas identification number by certified mail not later than the 60th day after the date the request is received. An owner of a royalty interest in oil or gas may obtain information regarding production that has been reported to the Railroad Commission of Texas by contacting the oil and gas division of the commission or accessing the commission's website and providing the identification number of the lease and the county in which the lease is located.

DIVISION ORDERS
Section 91.402(c) through (i)

As a condition for the payment of proceeds, a payor may require a signed division order from the payee containing certain provisions. These provisions include:

    • Effective date of division order
    • Property description and type of production
    • Payee's fractional and/or decimal interest
    • Payee's type of interest (Royalty, Override, etc.)
    • Certification of title to the share of production being claimed
    • Unless otherwise agreed to by the parties, agreement to notify payor at least one month in advance of effective date of any change of interest
    • Agreement to indemnify and reimburse the payor for payments resulting from failure of title
    • Authorization to suspend payment to payee for title dispute or adverse claim
    • Name, address, and taxpayer identification number of payee
    • Provisions for valuation and timing of settlements of oil and gas production to the payee
    • Notification to the payee that other statutory rights may be available to a payee with regard to payments

The statute also provides an example model form oil and gas division order that complies with the statute. Division Orders do not amend any lease or operating agreement between interest owner and lessee.

DISCLOSURE

The purpose of this page is to increase awareness of royalty payment requirements. It is not intended to serve as legal advice. Consult with your own attorney about questions concerning royalty payments.

Also, the lease or another contract may provide different requirements for payment than this statute. Working interest owners should check their lease terms so that they can be sure payments are made as required.

RESOURCES

American Royalty Council
National Association of Royalty Owners - TX (NARO-TX)
Texas Oil and Gas Association (TXOGA)
Council of Petroleum Accounting Societies (COPAS)
National Association of Royalty Owners (NARO)
Texas Independent Producers and Royalty Owners Association (TIPRO)
Permian Basin Petroleum Association (PBPA)
Panhandle Producers and Royalty Owners Association (PPROA)
National Association of Division Order Analysts (NADOA)
Texas Alliance of Energy Producers
Texas Land and Mineral Owners Association (TLMA)
Oil & Gas Mineral Services

BANKRUPTCY

If an operator with whom you are involved has declared bankruptcy, there will be a bankruptcy case pending in a federal bankruptcy court. There are many bankruptcy courts in Texas, divided into four main districts. A court-appointed trustee generally will be in charge of handling the bankruptcy. Your claims and complaints should be addressed to the trustee. The bankruptcy case most likely will be pending in a court nearest the principal office of the business. The clerk of the bankruptcy court can give you further information.

The Northern District includes Abilene, Amarillo, Dallas, Fort Worth, Lubbock, San Angelo, and Wichita Falls:

Clerk, U.S. Bankruptcy Court 1100 Commerce St., Room 14-A-7 Dallas, Texas 75242

(214) 767-0814

The Eastern District includes Beaumont, Lufkin, Marshall, Paris, Sherman, Texarkana, and Tyler:

Clerk, U.S. Bankruptcy Court 211 West Ferguson Tyler, Texas 75702

(903) 592-1212

The Southern District includes Brownsville, Corpus Christi, Galveston, Houston, Laredo, and Victoria:

Clerk, U.S. Bankruptcy Court 515 Rusk, Room 4603 Houston, Texas 77002

(713) 250-5500

The Western District includes Austin, Del Rio, El Paso, Midland, Pecos, Waco, and San Antonio:

Clerk, U.S. Bankruptcy Court P.O. Box 1439 San Antonio, Texas 78295

(210) 229-6720

MUNICIPALITIES

A municipality may not lease a street, alley, or public square in the municipality for use as oil, gas, or mineral land. A well may not be drilled in the thickly settled part of a municipality or within 200 feet of a private residence. Tex. Loc. Gov't Code Ann. '253.005