Replies to This Discussion

Permalink Reply by Mike on October 27, 2009 at 0:00

Chesapeake.

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Permalink Reply by The_Baron on October 27, 2009 at 4:09

Maybe, maybe not, see below.

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Permalink Reply by ELLIS HUGH on October 27, 2009 at 3:59

{It is my understanding that}

If the company in West Monroe still owns the lease, they will be responsible for the royalty payments due under the terms of the lease, not operator of the well.

Although, it is likely that the company that bought the lease assigned it to Chesapeake.

EH, looking for confirmation.

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Permalink Reply by The_Baron on October 27, 2009 at 4:08

Legally, The lessee is responsible for the payment of the royalties.

One of three things will occur:

1) original lessee (company A) will assign the lease to the unit operator (company B). This assignment will probally have B agree to take all responsibility to the lessor, and B will make sure royalties are paid.

or
2) Company A will keep the lease, and "elect to participate as a working interest". A is still responsible for the royalties, but many times, the operator will make an agreement with A to pay the royalties directly, this insures that the lease obligations are met hopefully preventing any problems. Many smaller companies will try to lease acreage in a unit so they can get a piece of the action.

or
3) Company A will go non consent, they wil receivetheir pro-rate share of revenue minus expenses, plus a 200% penalty (essentially paying three times the cost). Company B will probally make A pay its royalties to the lessor. This is the least likely option due to the 200% penalty.

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Permalink Reply by Mac Davis on October 27, 2009 at 7:23

"3) Company A will go non consent, they wil receivetheir pro-rate share of revenue minus expenses, plus a 200% penalty (essentially paying three times the cost). Company B will probally make A pay its royalties to the lessor. This is the least likely option due to the 200% penalty."

I thought the 200% penalty only applied if you agreed to participate and failed to make payments. (Probably badly paraphrased.) Wouldn't the lessee have the option to act like a "normal" UMO and not pay any penalties, just the deduction for drilling, production, marketing and management expenses?

It is my understanding that the lessee (West Monroe Company) is responsible for paying the lessor (Ronny) even if the operator (Chesapeake) doesn't pay the lessee. The operator is only responsible for paying the lessee. In practice, the lease or payments are often reassigned and you'll get the checks from the operator or even a third party. Ultimately, the company who owns the lease is legally responsible for the payments.

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Permalink Reply by The_Baron on October 27, 2009 at 9:33

They are subject to the 200% penalty, because they are leaseholders, as opposed to a UMO, which is an Unleased Mineral Owner, in the case of #3, the mineral owner is leased.

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Permalink Reply by The_Baron on October 27, 2009 at 9:35

From the state regs:

(e) The provisions of Paragraph 2(b) above with respect to the risk charge shall not apply to any unleased interest not subject to an oil, gas, and mineral lease.

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Permalink Reply by Mac Davis on October 27, 2009 at 9:51

OK, thanks for the info.

How about a previous owner who sold the land, but retained minerals, or someone who bought mineral rights outright?

It sounds like they would NOT pay a penalty.

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