Replies to This Discussion

Permalink Reply by cocodrie man on May 27, 2014 at 6:06

Is there a difference between ORI and UMI? If so, how is one "left ORI"?

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Permalink Reply by John Hawpe on May 27, 2014 at 6:11

Sorry, not sure what your referring too.

Not familiar with UMI.

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Permalink Reply by Skip Peel - Mineral Consultant on May 27, 2014 at 7:31

UMI = Unleased Mineral Interest.  It is different than an ORRI (Overriding Royalty Interest)  An ORRI is a revenue interest  created out of a Working Interest.  As a royalty interest it does not pay a proportional share of well costs as the Working Interest does.   It provides the owner a share of the proceeds of gross production not subject to operating or production costs.  An ORRI may be subject to other deductions such as state severance tax.  An ORRI is terminated when the lease under which it was created expires.

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Permalink Reply by John Hawpe on May 27, 2014 at 7:40

Skip,

Thanks for the response. How in the world is CHK getting away with charging gathering on ORI in the Haynesville.

Even on our revenue check it's classified ORI!

Any ideas?

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Permalink Reply by Skip Peel - Mineral Consultant on May 27, 2014 at 7:50

Depends on the language in the instrument creating the ORRI.  Notice that the generic definition I provided above says specifically -  "not subject to operating or production costs".  There are other costs beyond operating and production costs such as gathering, treating, transportation, marketing, etc.  If those costs were not specifically addressed in the language creating the ORRI the operator could make a case that they are not cost free and may be deducted.

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Permalink Reply by John Hawpe on May 27, 2014 at 7:58

Thanks, that make sense...unfortunately these were bought back some 60 years ago. I'm sure the original agreement had no terminology regarding those types of charges.

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Permalink Reply by adubu on May 27, 2014 at 10:55

John--even 60 years ago operators and owners of ORRI were smart and had all specifics address in language creating the ORRI in writing as Skip said above and usual had document filed for record.So if copy of such was not left to you with the ORRI then you will have to go look up at court house or ask present operator for copy. These  are old HBP leases since as Skip stated ORRI expire whenever lease that they were created under expires 

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Permalink Reply by John Hawpe on May 27, 2014 at 11:22

Thanks for the information. Do I just call CHK and ask for documents on the wells we have?

Sorry for being so dumb regarding this process.

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Permalink Reply by Andrew on May 27, 2014 at 11:39

John,

I'd be surprised if CHK would provide you with the source document, even if they had it (which I doubt). You're better off starting with the will or Judgment of Possession that left you the interests to see if it gives the book and page of the desoto land records where you can find the document.

In my personal experience most ORRI interests I see allow deduction of post production costs. Most ORRIs say that the operator is to "calculate and pay" the royalty in the same manner as the underlying lease, and the underlying lease usually allows these deductions.

Permalink Reply by W. Marshall Shaw on June 3, 2014 at 4:36

We have an ORRI on an old, large lease in the Golden Meadow field (Lafourche Parish).  The original lease was owned by the Texas Company.  It has swapped hands several times. Each time, the sub-lessee tries to take a bigger bite of the revenue stream.  At a certain point, it is not worthwhile going to court in order to enforce the terms of the contract.  One has to calculate the balance between litigation and possible outcome.  That is what the oil companies do, on the other side.

Texas gives even more power or more leniency -- however one wants to phrase it -- to big companies, as we learned when we were recently negotiating an OGML out in the Permian Basin in west Texas.  All states are hard on the little guy.

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Permalink Reply by John Hawpe on June 3, 2014 at 5:24

Mr. Shaw,

Thanks for the response.

We have a small interest in 4 gas wells in Desoto Parish which CHK helps it's self to 1K per month on the average for gathering charges. Must be more than myself complaining about this in that Parish.

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Permalink Reply by W. Marshall Shaw on June 3, 2014 at 5:38

I don't know how your OGML reads.  If others are equally abused, the solution is to investigate the possibility of a class action.  Otherwise, CHK will stonewall you.  Litigation as an individual royalty owner is impossibly expensive.  

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