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Requirements for Making Payments Under an Oil, Gas & Mineral Lease in Texas

ALL SECTION REFERENCES ARE TO THE TEXAS NATURAL RESOURCES CODE, TITLE 3: OIL & GAS

WHEN LESSOR SHOULD EXPECT PAYMENT - Sections 91.402(a) and (f)

Initial payment

  • 120 days after end of month of first sale

Ongoing payments

  • 60 days after end of calendar month in which oil production is sold
  • 90 days after end of calendar month in which gas production is sold

Payments must be paid when the payment reaches $100 (unless contracted for a different amount), or

  • if the payment amount doesn’t reach $100 within 12 months but is greater than $10, that amount must be paid annually.
  • Payments that do not reach $10 annually must be paid upon the sale or plugging of the well or at Lessor’s request.
  • A royalty owner can request, in writing, payment monthly if the amount is over $25 but less than $10.

WHAT MUST BE REPORTED WITH A PAYMENT - Section 91.502

  1. Property Identification (name, number, or both; and county and state)

  2. Sales month and year

  3. Barrels of oil or amount of gas

  4. Price per barrel of oil or Mcf of gas

  5. Severance or other taxes deducted

  6. Other deductions or adjustments as specific to Lessor’s lease

  7. Net value of total sales after adjustments

  8. Owner decimal interest

  9. Owner gross value (sales value before tax deductions)

  10. Owner net value (sales value after deductions)

  11. Address and phone number of where additional information can be obtained.

WHAT LESSOR CAN REQUEST - Sections 91.404(b), 91.504, and 91.505

Failure to make payment

Lessor can notify the operator in writing by mail of failure to make timely payment. They must then either make the payment or respond in writing within 30 days of receipt of the notice why there was nonpayment. (Lessor, as the royalty owner, may have cause of action for nonpayment in a court where the well is located).

Additional information

Lessor may request by certified mail additional information regarding itemized deductions, the heating value of the gas, and the Railroad Commission of Texas (RRC) identification number for the lease, property, or well. Lessor’s request must be responded to within 60 days of receipt of the request.

Additional information regarding production and related information may be obtained by contacting the RRC office or accessing their website (www.rrc.state.tx.us). Additional requests sent by certified mail for information not covered by Section 91.504 must be responded to within 30 days of receipt of request.

Operators must notify Lessor annually that Lessor can request information.

CHANGE OF COMPANY MAKING THE PAYMENT - Sections 91.407(a), (b), and (c)

If there is a change in the company making the payment, they must notify Lessor in writing of the change at Lessor’s most recent known address. The notice must include property name and number, effective date (month and year), and the new company’s address and phone number. A division order, check detail, or other written communication that includes all of the above information will satisfy the requirement.

SUSPENDING PAYMENTS - Sections 91.402(b) and 91.402 (f)

Payments may be withheld without interest beyond the time limits set out as noted previously (provided the lease does not provide otherwise) when:

  • A dispute concerning the title that would affect distribution of payments

  • A reasonable doubt exists that Lessor has sold or authorized the sale of Lessor’s share of the oil or gas

  • A reasonable doubt exists that Lessor has clear title to the interest in the proceeds of production

  • A requirement in the title opinion that places in issue the title, Lessor’s identity, or Lessor’s whereabouts which has not been satisfied after a reasonable request for this information has been made by the operator.

  • Payments have not yet reached $100 (see When Lessor Should Expect Payment above)

WHEN INTEREST IS DUE - Sections 91.403 and 91.407(d)

Late payment interest is due at a rate of 2 percentage points above the rate charged on loans to depository institutions by the New York Federal Reserve Bank when:

  • The payment is late and the title is clear

  • The payment is late, a division order is offered that does not comply with statues, or the division order is not signed

Late payment interest is due at a rate of 4 percentage points above the rate charged on loans to depository institutions by the New York Federal Reserve Bank when:

  • The payment is late and notice that there is a new operator has not been provided

Also, the lease or another contract may provide different requirements for payment than in the statute.

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