being paid the wrong amount of royalty

I recently discovered that a leased o&g interest I inherited is being paid the wrong percentage of royalty.  Our title work shows that we own 1/32 and are being paid 1/64.  I have no idea how long this underpayment has persisted, but the original lease is from 1894.  There was a subsequent 1929 lease, and then my mother bought her father's interest in 1944.  It was a fixed rate ($100/year) lease until the East Resources settlement a couple of years ago. WV DEP web site shows no production 1989-2010, but there was gas produced in 2011-2012.  I'd really like to reject the lease and start over, but I guess the production holds it for now.

I plan to contact the operator and request a corrected payment.  How much information, as far as title work or document copies, should I provide them?  Does this need to come from an attorney who certifies the title work?

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Permalink Reply by Lisa McKenzie on September 9, 2013 at 4:44am

Nancy, I see that the Flat Rate Royalty Statute you linked (6/13/1982) prohibits new drilling under Flat Rate Leases, unless the permittee files an affidavit saying they are paying at least 1/8th without deductions.  My Marion County Flat Rate Lease ($100/year since 1929, and we have a 1/3 interest in this lease) had a new permit issued in August 2010.  I have called DEP for information, but left a message this morning.

I will request copies of all the paperwork that came with the permit application.  Anything else I should request?

This well shows 0 production for 1989-2010 on the DEP site, then 758 mcf for the year 2011 and 1,646 mcf for 2012.

I have emailed the operator asking for calculations supporting the lease payments they have made.  Even the $3.13/quarter that I have check stubs for since the 1960's makes no sense.

Permalink Reply by Nancy Mosley on September 9, 2013 at 8:14am
Hi Lisa, that sounds right about the paperwork to request for the permit.
If you have your original lease (I think you said you do) look at the terms of it, and what it says about paying the $100 a year rental. As i understand it, they should have been doing that whether or not they are producing it, to hold the lease. Remember I am not a lawyer but if lease language doesn't say something about producing in paying quantities, they need at least to pay the rent. If lease Does say that it needs to produce in paying quantities, then they voided the lease by the nonproduction and you have a different situation. I am interested in how this works out.
in the early 1980s my aunt and dad, and the other royalty owner had to sue a company for trying something like that, trying to say the old flat rate wells, the leases it had bought from another company and which the new operator was reworking with new permits, were part of the continuing lease. However the wells had not produced in a number of years. I don't remember details.
Permalink Reply by Lisa McKenzie on September 9, 2013 at 8:28am

I'm not a lawyer either, but I used to re-negotiate defaulted commercial loans for a living.  Large loans for a major Wall Street bank. I like to think I can read and understand the documentation.

I got the permit from DEP and the 8/2010 permit was to plug and abandon the well.  There is a 1/2011 form to DEP saying the work was not done.  Now the well is producing.  I have a phone call into the OOG man whose name is on the permit.

There is nothing in the lease about gas production.  The lease actually says the well is producing so little (in 1929) that it does not qualify as a gas well, but that the lessee wanted to capture and use the gas.  Payment is $100/year.  The only default in the lease is for non-payment and even that requires that I give them written notice and they have 60 days to cure.

Permalink Reply by Nancy Mosley on September 9, 2013 at 8:33am
Demand interest for your share of that $100 that they didn't pay all those years! About this situation, sounds like from now on they must pay the 12.5% royalty (your prorated share). Also of course for the recent production.
Permalink Reply by Lisa McKenzie on September 9, 2013 at 8:52am

I have asked the operator to send me a copy of the current lease and computations for the payments we have received.  The lease she sent previously (1894) has an official Released stamp on it.  I have 1969 check stubs for $3.13, so perhaps I need to claim all the way back to 1944 when Mom bought this interest from her father.  I can't document anything more than that.

Now I see an Unclaimed Property for the names on the 1894 lease.  Interesting.

Permalink Reply by Nancy Mosley on September 9, 2013 at 11:02am
Very interesting indeed! I am looking forward to the next thing you discover about this. If the released stamp has a release docket number and page, that would be another document in your chain of title for this.
Permalink Reply by Lisa McKenzie on September 9, 2013 at 12:47pm

Yes, it has a book and page number for a Lien Release Book.  The OOG guy called me and said yes, they are producing now.  Duh.  He had called the operator to confirm.  Love that he gets a same-day call with someone who still hasn't returned my August 8 phone message.  I decided a couple of weeks ago to do more research then start writing letters.  Must be something there that they want to hold by production without paying Marcellus signing bonuses.

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