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Permalink Reply by Gas Boy on January 13, 2014 at 1:27pm

I'd check regarding the tax laws in Ohio.  Maybe your being taxed the $12 because like West Virginia minerals are taxed, and there may be a minimum tax levied if you have a well, producing or not, on you land.  I'd go and see an accountant.

A well is considered "producing" even if all it produces is a fart of gas that is then sold during the course of a year.  You may only then get a royalty check for $.001, which still means that gas was sold.

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Permalink Reply by Nancy Mosley on January 13, 2014 at 1:44pm

In West Virginia the royalty interest (Oil Gas & Minerals) is taxed by the counties and there are different formulas for producing and non producing properties. These taxes are sent in July each year by the county Tax Dept. This is not taken out of a royalty check.

Ohio must do something different.

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Permalink Reply by Den on January 15, 2014 at 5:11pm

Actually, I've found an ohio supreme court ruling that defines "paying quantities" regarding production.  "quantities of oil or gas sufficient to yield a profit, even small, to the lessee over operating expenses, even though the drilling costs, or equipping costs, are not recovered..."

This means the well has to produce enough money for it to cover the operating costs to be a producing well. 

I'm still trying to find out about the oil tax.

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Permalink Reply by Den on January 16, 2014 at 6:05pm

Another question.  How is the gas production being measured, when there is only one meter as the gathering line ties into the gas company line?  There are multiple wells from different units/properties on the gathering line.  The only thing at the individual well is the differential pressure chart recorder.  Can you tell from that?

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Permalink Reply by Markus on January 17, 2014 at 8:17am

I have to agree with Gas Boy and the comment about what constitutes production.

Many on these boards speak often about production having to be in "paying quantities" though it is important to see what your lease specifically states about production.  If it doesn't reference "paying quantities" or something along those lines, you cannot look to that precedent.

Remember that prices rise and fall for both gas and oil.  Wells that are profitable today based on current oil prices may not have been profitable back in 1999 when oil per barrel was down at around $10.  If all of those wells were deemed unproductive and force plugged, it would have had a significant negative impact on the country's overall oil production.  

Remember that a huge huge number of wells in the US (something like over 80% of them) are stripper wells and therefore produce low quantities but in a consistent manner over time as one moves out on the curve.  

So again, you need to look closely at what your lease says.  If it provides no definition of production, I think Gas Boy's use of the word 'fart' applies.

Regarding the payment of taxes, you have to look at the lease.  In most cases on old leases, but not all, royalties should be free of any expenses which means the landowner/ mineral owner should get the royalty directly off the top before any expenses are paid, even regulatory fees or taxes.  Again, look at the lease.

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