If UMO signs lease in section w/ producing well, is he owed back royalty

Scenario: Owner gets ready to sign a lease. Gas co. backs out because it is feuding with a group of UMOs in that section. If owner gets gas. co to sign, is it at discretion of gas co. to pay back royalties (gas co. told owner this). Well is a good producer and has been producing for over a yr. during which time owner has been getting quarterly reports from gas co. Well pays out in July, so 100% royalties will start paying

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KCM, owner needs to look at the effective date of the lease agreement (ie was effective date before initial production).  If effective date is later, owner needed to include a provision to address back royalties.


After payout the owner receives 100% of revenue (not royalties) less operating expense.

initial production started March 2010. No lease signed yet. Gas co. was fighting with a group of UMO at time & backed out of signing lease with this neutral party the day of signing, sooooo neutral party went UMO out of "no choice." If the owner were to sign a lease now, is it possible to go back and get the 25% royalties? In asking this question of gas co., they said they would sign the lease BUT would not give the 25% back royalties. Made the owner want to stay unleased
I would agree with the UMO. Why lease now if they are not going to pay back royalty?

Since you can look at production data from March 2010 you could get a rough idea how much money has been grossed.


$998000 LEFT end of March before well pays out

If it was me, my next questions would be:

1)What has the accumulative production been to date? (how much more gas MIGHT be made based on EUR)

2)What is the well making per month according to the most recent data

I can't believe if the well is a barnburner (but it sounds good according to the amount of money made to March) the the company wouldn't be willing to agree to pay royalties to the beginning of the well. The mineral owner has the best cards her because he has over a year of production to look at. Well he has the best hand unless the well has cratered or something.

March 2010 or March 2011?


If this well started producing in March 2010, and still has almost $10M left for payout in March 2011, it is one of these three:

-  a dog of a well

-  really choked back

-  or the well cost seems unusually high


I don't think your friend has any good options.


Its 998,000 left to payout not 10 million. 

Still al long way to go, What is the current production look like?
you don't sign, you don't get check. and this includes initial production from future wells! this is a no-brainer!

Robert, I know people who have signed a lease and the gas co. gave them 25% & back royalties just to sign the lease. Sure would save the gas co. a lot of hassles because they have to send lots of reports to a small mineral owner who has 100%

Addressing your question from a legal standpoint, Les is right.  The company has no obligation to pay back royalties unless the effective date is backdated to before production, or a provision is included in the lease requiring it do so. 


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