By: James Godbold – Published in the BizWest Thought Leaders column in June 2021
Once an oil & gas well has been drilled and begins producing, Colorado has a statute requiring that oil & gas companies pay proceeds/royalties due to owners: (1) within six months after the first sale of oil & gas from a well; and (2) on a monthly basis after that, with payments due no more than 60 days after produced oil is sold and 90 days after produced gas is sold. If an oil & gas company fails to pay an owner these proceeds in a timely manner, it may be subject to interest and/or a penalty may be imposed on the company. In some cases, the interest and penalties can be substantial.
Under certain circumstances, however, oil & gas companies are entitled to withhold royalties and are not required to comply with these deadlines. This may include failure of the owner to sign a division order, doubt as to who owns the minerals or whether they have clear title to the minerals, an inability to locate the owner, or pending litigation that would affect who is entitled to payment of the royalties.
Frequently, oil & gas companies will suspend payment because of uncertainty as to who owns the minerals and who is entitled to receive the royalties. This can include issues over whether the minerals were properly probated when a family member passes away, dispute over ownership of the minerals, or other problems the oil & gas company’s attorney has identified in the chain of title to the minerals. When this is the case, the oil & gas company will often require additional steps to “cure” title and establish ownership and a right to receive the royalties. If you believe you are entitled to proceeds from oil & gas production but have not received payment or have had your payments suspended, it is likely that you need to take additional steps to “cure” title and show you are entitled to receive the royalties. These additional steps may include needing to probate an interest in the minerals, filing a petition to determine heirship for someone who owned the minerals, or filing a quiet title action over disputed ownership of the minerals.
Given the complexity over the steps required to cure title to minerals, it is always best to seek the advice of an experienced oil and gas attorney who can guide you through the process of establishing ownership of the minerals and showing you are entitled to receive proceeds from the oil & gas company.