If you are entitled to royalty payments under an oil and gas lease, the oil and gas company must pay you within certain time limits set out by state law. Usually, the oil and gas company has a few months from the time the minerals are extracted from your land to pay you your share of royalty. However, it isn’t unusual for companies to be late in paying property owners their royalties in the oil and gas business. Sometimes payments can be many months or years late. If that happens, you could be entitled to charge interest on the money due under state law. This is known as statutory interest.
Learn more about statutory interest in oil and gas and related information below. If you have a royalty payment and interest dispute with an oil and gas company, our Nix Patterson oil and gas attorneys can assist. Our attorneys often represent classes of underpaid royalty owners.
While a royalty interest agreement (known as a lease) often works well for all parties involved, sometimes operators don’t pay royalties on time, and statutory interest comes into play. Nix Patterson frequently represents unpaid royalty owners, such as in recent class actions against XTO Energy, Apache Corporation, and Sunoco, with interests in Oklahoma oil and gas fields.
In each of the class actions, the class (represented by Nix Patterson) argued that the oil and gas company was not paying royalty in a timely manner as required by state law. Instead, the companies were holding on to royalty owners’ money, sometimes for months or years, to float their own operational costs. In other words, the oil and gas companies were using withheld royalty payments as interest-free loans. This is not allowed under Oklahoma law. Most states require oil and gas companies to pay interest on late royalty payments, sometimes as much as 12% or 18% compounded annually. This interest can really add up.
The rules differ by state. For example, according to the statute in Texas, oil and gas production royalties are due on or before 120 days after the end of the month of the initial sale of oil or gas from the well. This provides the operators four months after the well starts producing to get a title curative, establish a pay deck for the oil or gas well, send division orders to the assorted owners, and begin paying royalties.
After that, royalties must be paid 60 days for oil and 90 days for gas after the conclusion of the calendar month in which the well production is sold. However, operators are not required to make royalty payments on time if the owner doesn’t sign a division order or if the owner’s interest involves a title defect.
If you receive oil and gas royalties in Oklahoma, the operator must pay within six months of the initial sale of production and by the end of the second month after subsequent sales. If they don’t pay on time, you must be paid 12% interest compounded annually on the unpaid amounts as a royalty owner. Even if you are entitled to statutory interest, the operator might not pay you automatically. Therefore, you may need to ask for statutory interest payments from the operator.
Investing in oil and gas can be profitable, but there can be headaches, as well. If you or your organization has an oil and gas dispute involving late royalty payments and statutory interest, Nix Patterson can help. Contact our oil and gas attorneys today for a complimentary consultation.