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Permalink Reply by Skip Peel - Mineral Consultant on February 23, 2018 at 7:55

Brian, questions of this sort need to begin with an acknowledgement of the state in which your mineral interest is located.  It's sounds like you are referring to LA mineral law but before anyone goes into a length response, you should provide that information.  We have a lot of members in both LA and TX and the laws involved with your question could not be more different.

As to calculating the decimal interest for a royalty interest, the number of net mineral acres is divided by the total acres in the drilling and production unit and multiplied by the royalty fraction.  So you have it correct except it should be noted that the sum is the gross amount, not the net amount on a royalty check.  The big unknown is how much is deducted post production?

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Permalink Reply by Brian H on February 23, 2018 at 8:11

Louisiana is the state of reference. Yes production costs removed in the accounting of an expense bearing lease, no production costs removed in an expense free lease. But with the way company accountants can hide beans under the shells, an expense free lease still carries with it suspicions of the royalty owner not being paid their full due revenues from an expense free lease. As one lawyer, remaining nameless, told me, he doesn't know of one honest energy production company in Louisiana. So fellow royalty owners you can rest easier at night knowing that you're not alone in suspecting shady accounting on royalty check stubs and how likely it is that you are not being paid all that you are due from the gas being sold in your section.

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Permalink Reply by Skip Peel - Mineral Consultant on February 23, 2018 at 8:28

Not all "no cost royalty" clauses are created equal.  My O&G law firm's custom lease has one and one half pages of "no cost" language based on LA case law.  Of course not every mineral owner has the clout to get that approved however anyone who didn't spend a few hundred dollars on an experienced O&G attorney to review their lease prior to execution may have missed an opportunity.  Anyone who executed an O&G lease with a no cost clause supplied by the lessee should not be too surprised if in the end it is not honored owing to faulty language not in line with case law.

I counsel against going non-consent unless the mineral owner has deep pockets and lots of professional assistance:  attorneys, accountants, landmen, etc.  Not all wells payout quickly.  And depending on the operator to fully provide all the pertinent data is an invitation to getting pencil whipped.  I do have to disagree however with the lawyer's comment.  It paints with too broad a brush.

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