An oil and gas lease is a written agreement in which a mineral owner (the “lessor”) allows another person or company (the “lessee”) to explore for, drill, and produce oil or gas on specified lands for a certain period of time in exchange for the payment of royalties. The lease provides a legal description of the property, the amount of royalty to be paid (typically expressed as a fraction, e.g., 1/8 or one-eighth), the length of the lease (also known as the “primary term,” typically for a specific number of years), and the rights and obligations of the lessor and lessee.
Royalties are the mineral owner’s share of production sold as reserved in an oil and gas lease. The royalty amount is usually expressed as a fraction of the total amount of hydrocarbons produced and sold from the leased premises
Before obtaining an oil and gas lease, drilling a well, or making payments under a division order, the person or company determines who owns title to the surface, minerals, and royalty and working interests in the land. Title is typically determined by a title opinion, which is an attorney’s written legal opinion based upon an examination of the real property records in the county where the land is located. The opinion often requires that curative instruments be obtained before the property interest is purchased, drilled on, or revenue payments made. Some title discrepancies which may arise as a result of the title opinion include: discrepancies in deeds, unprobated estates where an interest has been inherited, unrecorded documents in the chain of title, and uncertainties of identity with respect to owners.
If a curative action is required for your oil and gas interest, MPC Petroleum Corporation (MPC) will notify you of said requirement. Royalty payments will not be made until title has been cleared. Should your interest require curative action the funds will be held in legal suspense until the time all recommended documents have been received.
If you have questions regarding a title requirement or curative action and/or how to resolve said requirement, please contact an attorney practicing in the respective state in which the property is located.
Once title has been “cleared” and a producing well has been drilled, a division order authorizing the sale of production from the well is sent to all royalty and working interest owners for their signatures. The division order sets forth the decimal interest of production owned by each party, their addresses, and a legal description of the property on which the well is located. A tax identification number or Social Security number is also required on the form in order to avoid backup withholding deductions of 28 percent as provided for under IRS regulations which may be updated or superseded from time to time. The owner may make an address correction on the division order. The owner’s signature on the form will allow us to make the address change on our records prior to making a royalty payment. Attached to the division order may be an Exhibit A showing the breakdown of tracts in the unit, the interest of the party and the calculations determining the decimal interest.
Your specific decimal is calculated as illustrated on the Exhibit A attached to your division order. Typically, the state regulatory authority in the state where the well is located establishes as spacing unit for the well, being the amount of acres the well will produce from. For our example, the spacing unit is 1280 acres, which comprises two sections of land.
Your Tract Acreage/Total Tract Acreage = Tract WI - (If you have leased your minerals you will not have a TWI)
Tract WI X Royalty = Tract NRI
Tract NRI x Tract Factor (Tract Acreage/Total Acreage in Unit) = Unit NRI (UNRI)
For example: You own 20 acres in Tract 1 and you have leased that acreage at a 1/8th royalty. Tract 1 consists of 160 acres – The total acreage in the unit = 1280 acres.
The calculations would be as follows:
20/160 (Your Total Acreage/Tract Acreage) = 0.125 – Tract WI 0.125 TWI x .125 (1/8) Royalty = 0.015625 Tract NRI 0.015625 TNRI x 0.125 Tract Factor (160 acreage in tract/1280 total acreage in unit) = 0.00195313 – Unit NRI
Interest types are represented by an alpha code on MPC’s check detail. Code explanations are shown below.
W. Working Interest: The exclusive right granted to the lessee to explore for and to produce and own the oil and gas located under the lands covered by the oil and gas lease. The working interest owners bear all costs of exploration, development and operation.
R. Royalty Interest: Lessor’s share of production as set forth in the oil and gas lease.
O. Overriding Royalty Interest (ORRI): An interest in production that is created and payable out of the working interest. Usually, the term of an ORRI is for the life of the oil and gas lease.
MPC assigns each of its interest owners a unique owner number for internal identification purposes. Please include your owner number when communicating or corresponding with MPC. The owner number can be located on the bottom left hand corner of the check detail.
MPC typically issues checks on or around the 20th of each month. Please allow time for postal delivery.
For various reasons, a check may arrive a few days late. If your check is more than two weeks late, please contact MPC. A frequent reason for not receiving a royalty check is that your account has not reached its “minimum pay status”. MPC typically remits revenue to owners once an account balance exceeds $100, or at year-end, whichever comes first or as dictated by the laws of the state the property is in. Occasionally, payments are held due to title matters that create uncertainty as to ownership, such as notice of death, change of address, transfer of property, assignment of interest, or legal dispute. Payments due are accumulated and released when the matter affecting ownership has been resolved. Inquiries regarding suspense balances should be made in writing to MPC’s Division Order Department.
Please contact the Owner Relations inquiry line at 281-616-5100. Be sure to clearly state your name, owner number, phone number /or email address.
Our bank will not honor checks that have been outstanding for more than 90 days (“stale dated”). If an owner discovers that its check is stale dated, they should return the check to the above address shown in item #13 to the attention of Accounting Department. If the returned check has not previously been reissued to the owner, it will be voided and the entire amount of the check will be credited to the owner's account. The amount credited will then be paid to the owner on the next regularly scheduled check write process.
You may e-mail, write or call MPC at the address or phone number listed. To e-mail MPC please use our contact form.
Please promptly notify MPC of any change in your mailing address. This notice must be in writing and signed by you or your official representative. Please include your name, owner number, Social Security number, old address, and new address, including the zip code. For your protection, address changes are not accepted by telephone or email. Please send address changes to Murex Petroleum Corporation, 363 N. Sam Houston Parkway East, Suite 200, Houston, Texas 77060 – Attn: Land Department
Please provide MPC with a written request to change your name. Your request should include your old name as it appears in our records, your new name, and a court certified copy of the marriage certificate or divorce decree.
You must file a deed, assignment, or other instrument conveying title in the interest to you and your spouse in the real property records of the county in which the interest is located. You must then provide us with a certified copy of the instrument to add your spouse to your account. When in doubt concerning handling of this matter, please consult your attorney.
Please contact MPC’s division order department in writing so that we may place the account in suspense pending the outcome of probate.
If the owner died with a Will (testate) and Probate proceedings have been or will be conducted in the state where the property is located, please provide the following:
If the owner died with a Will (testate) and probate proceedings are conducted in a state other than the state where the property is located, please provide the following:
If the owner died without a Will (intestate), please provide the following:
ALL DOCUMENTS AFFECTING CHANGE OF OWNERSHIP MUST BE FILED OF RECORD IN THE COUNTY WHERE THE PROPERTY IS LOCATED
a. You should provide MPC’s Division Order Department with a recorded copy of the deed, assignment, or other instrument of conveyance properly recorded in the county in which the property is located.
You should provide MPC’s Division Order Department with a recorded copy of the deed, assignment, or other instrument of conveyance properly recorded in the county in which the property is located.
You should provide us with a copy of that portion of the trust instrument that identifies the successor trustee, its duties and powers, and the circumstances leading to the trustee’s replacement. You should also provide us with the successor trustee’s address.
For your protection, payments may be suspended in the event of uncertainty as to ownership caused by a title dispute, assignment of interest, notice of death, transfer or sale of property, or unknown address. You may be able to prevent such an inconvenience by promptly notifying MPC of any change regarding your interest, as discussed above.
Many factors contribute to your payment. Changing market conditions may cause fluctuations in commodity prices on a monthly basis, while mechanical or operational problems or routine maintenance may temporarily affect production and cause downtime. Also, over time, production volumes from an individual well will experience a natural decline. So, while this may be offset with additional wells being drilled on your property, the decline in production volumes from individual wells is inevitable. If you have reason to believe an error in payment has occurred, please contact us in writing at the address listed in contact information.
MPC strives to disburse revenues in accordance with each owner’s oil and gas lease and all statutes and regulations of the state in which the interest is located. In the event of an error or discrepancy in your payment, we will make the appropriate correction and an adjustment to your payment may result. For instance, we may receive adjusted production figures or adjusted pricing from a purchaser. An adjustment to your royalty payment might then be required to ensure that accurate payment is made. Each state has a statute of limitations that governs how far back in the past a company is obligated to make such payment adjustments. Please remember that adjustments may sometimes be in the royalty owner’s favor.
You must provide us with a valid tax identification number or Social Security number for reporting and identification purposes. Otherwise, the Internal Revenue Service requires that we withhold 28 percent of all revenues until this information is provided. As mentioned previously the withholding percentage may be updated or superseded from time to time.
Form 1009's will be mailed via the United States Postal Service on or before January 31st each year for the preceding calendar year. Please allow ten (10) business days for the form to arrive in your mailbox.
25. Why is there a ND State Tax charged on my royalty?
House Bill 1198 enacted by the North Dakota Legislature became effective January 1,2014. Under this new law anyone making royalty payments to a non-resident, non-working interest owner of property in North Dakota must withhold North Dakota state income tax from those payments.
The legislation requires the applicable tax to be withheld at the time of payment. The withheld tax can be claimed on the tax return filed by the mineral royalty owner at the end of the year. The following may help you understand how this new law may impact you as a mineral royalty owner.
Non-resident individuals, estates or trusts are subject to a 3.22% withholding rate for 2014.
C-Corporations are subject to a tax of 4.53% but the law allows those making payments to withhold at the lower 3.22% rate for all mineral royalty owners subject to the tax if not doing so would cause a great burden to the payor. Therefore, all North Dakota state income tax withholdings made by Murex in 2014 will be at 3.22% in 2014.
Federal form 1099-Misc that will be issued next January will show any North Dakota income tax withheld in Box 16 of the form.
If a mineral royalty owner is exempt from taxation they must complete Form RWT-EXM with the North Dakota State Tax Commissioner.
Once this has been approved by that Office, a copy of the approved form must be provided to the payor for the tax withholding to cease.
If you need more information or the form, it can be located on the state’s website www.nd.gov/tax/ .