Royalty payments delayed - interest and penalties accrue?

BP America drills a Haynesville well in the summer of 2010. First production is March of 2012, but Division Orders don't go out until December 2012, and no royalties are paid until the end of February 2013. That's well #1. It's currently operated by Comstock.

Well #2 is drilled by the same outfit around the same time, but first production is September 2011. No Division Order is sent until March 2013, and no royalties paid to date. Chesapeake is operating the well, but BP sent the Division Order.

I'm fairly new to the game here, but it's my understanding that royalties accrue from the date of first production and are due immediately, with a 90-day grace period per Louisiana law. The law also provides for interest and penalties accruing after 90 days on unpaid royalties. I also understand that it's common for there to be a longer delay than that for the first payment of royalties to be made, after first production, but the law is the law.

If a well operator has an address for an owner within the production unit, and there is no issue with titles, aren't they liable for interest and penalties accrued on royalties not paid within 90 days of production? In the case of both wells I've described above, is there anything that would cause the owners not to be entitled to interest and penalties on the unpaid royalties and royalties paid late?

Thanks in advance for any advice or information!

Tags: late, payment, royalty

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Permalink Reply by Nicholas B. Couch on May 13, 2013 at 3:48

We did get something of a runaround from both BP and Chesapeake initially, on well #2. Chesapeake operates the well, according to SONRIS, so we contacted them about the royalties due since September 2011. They said "oh no, you have to talk to BP." When I finally did that, of course, they passed the buck back to Chesapeake - but even as I spoke with them and they denied responsibility, they had already sent out a division order for the well. I spoke with them a second time and that all appears to be straightened out now.

Permalink Reply by Nicholas B. Couch on May 13, 2013 at 6:35

I called the "BP Owner Hotline" at the 800 number that the Chesapeake guy had given me. The people I spoke with there appeared to be representing BP America, but I guess they were just contractors. At any rate, they were very helpful and forthcoming. Now we'll have to see how quickly they pay up, now that I've sent them all the required paperwork.

Permalink Reply by HBP on May 12, 2013 at 13:08

short answer:  Interest maybe.  Not penalties if you didn't notice them per the mineral code and then they also failed to make an adequate response.  I'd have to understand a few more facts but I don't see penalties on a slow pay unless willful or in violation of a request under the code.

Permalink Reply by Martin on May 12, 2013 at 14:12

I have no  experience in this area. However I have been pleased with the work of Mr. Summers, of the Shreveport law firm Davidson, Jones & Summers in the negotiation of several leases with Chesapeake. 

1kw6x71km1v37Permalink Reply by 1kw6x71km1v37 on May 12, 2013 at 15:01

You won't get their attention until you file suit. Thereafter, you will have their undivided attention. The procedure to be followed be lessors is discussed in LRS Title 31, Articles 137 thru 143. As I recall, you are entitled to court awarded attorneys' fees if it goes that far. Said fees are never enough, any attorneys on your behalf will also insist on a big bite of your bale of hay. Good luck.

Permalink Reply by Nicholas B. Couch on May 12, 2013 at 17:10

Thanks to the four of you for your feedback!

I have been in email contact with Comstock - I have a name and a phone number, but email is so much easier, plus you have a record - but so far they are stonewalling me. First they tried to insist that they paid everything on time, then they tried to claim that they didn't have a mailing address and therefore couldn't pay anything, even though they had sent a Division Order to the correct address back in December.

I've been on the phone twice with BP America, and both people I've spoken with have been very helpful, but of course they have yet to pay a dime of royalties.

I will note any major developments by replying here.

Thanks again to all respondents. It sounds like I'm on the right track, at least as far as trying to collect interest, if not penalties.

Permalink Reply by Andrew on May 13, 2013 at 4:13

Nicholas,

There is no statutorily-defined deadline by which royalties have to paid. If there is no clause in your lease regarding the matter, then they have whatever period is customary in the oil and gas industry within which to pay you. You're in limbo until you notify them of the non-payment in writing.

There was a bill proposed this session that hoped to fix the deadline for payment under the Mineral Code. The proposed bill can be viewed here. Unfortunately we'll have to wait another year for a statute such as this, because the bill was referred to the Mineral Law Institute for further study and recommendation for the 2014 session.

Permalink Reply by Nicholas B. Couch on May 13, 2013 at 5:36

Thanks, Andrew. I take it Louisiana R.S. 31;137-141 and R.S. 30:136 only apply to state royalty payments - ? Does the law provide a definition of "customary"?

So far, Comstock's reaction to my queries indicates that they believe they do have an obligation to make timely payments. They haven't made the claim that there is no statutory limitation like 90 days, as I have claimed in writing to them. Of course, if I'm wrong on that, I'll back off, but in both cases the delay seems egregious. They are raking in millions every month from these wells, and it's just not right that the owners don't get paid until BP and Comstock feel like it.

Your "limbo" statement intrigues me - what recourse do I have after I've notified them in writing?

Permalink Reply by Andrew on May 13, 2013 at 5:49

Nicholas,

Articles 137-141 of the Mineral Code do indeed apply to private party leases such as yours. However, if you read those articles carefully there is nothing that says when the company has to make initial payments by, nor how soon they have to make monthly payments after that. ("Customary" would be a factual determination based on what other operators in the area do in the ordinary course of business. This is pretty much a toothless standard).

Rather, those articles deal with the time periods within which they have to respond to your inquiry or demand. What I meant by "limbo" is that those articles will not apply until you provide written notice. Once you provide notice, the clock starts ticking.

As for what happens after you've notified them in writing, those articles deal with that exact issue, especially 138-140.

La. R.S. 30:136 applies to state-owned mineral rights and leases only.

Permalink Reply by Nicholas B. Couch on May 13, 2013 at 6:24

Andrew, I really appreciate the clarification. I had found a state document online that cites language from the statutes mentioned, but I clearly misinterpreted it.

Thanks again for taking the time to respond!

Permalink Reply by Nicholas B. Couch on May 13, 2013 at 5:42

One other item - I read something on this site recently that I think I misinterpreted. It does appear that in other states - Texas, Oklahoma - the law requires that interest be paid to private landowners when royalties are paid late. In the context I was reading this comment, it seemed to apply to Louisiana as well, but maybe that was not a correct assumption.

Permalink Reply by Andrew on May 13, 2013 at 8:46

Check out article 140 of the Mineral Code.

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