Oil and Gas Royalties

    Oil and Gas Royalty Interest Changes

    Silhouette of wellhead assembly on oil well in oilfield

    Oil and Gas Royalty Interest Changes

    Changes happen in ownership, and the royalties need to go to someone else.  Below, please find different types of changes that occur, and the major items that will be needed in order to make the change.

    Worthy of noting:  Our records are based on record title ownership.

    Death of Owner
    Owner passed away without a will or you will not be probating the will in MontanaDeath Certificate and Affidavit of Proof of Death and Heirship (PDH) completed by a disinterested third party.  It will need to be filed in the County where the properties are located/royalties are earned.  E-mail us to help you complete the form.
    Owner passed away with a Will that will be probated in Montana to transfer to the heirs
    • Death Certificate
    • A conveyance from the estate (i.e. Deed of Distribution, Assignment, etc.) recorded in the county where the property is located.  
    Owner passed away with a Will that will be probated in a state other than MontanaIn order for the property to transfer to the heirs, an ancillary probate will need to be done in Montana.  If this is economically unfeasible, you may wish to pursue completing a PDH, as described above.

     

    Change in Ownership, i.e. purchase, sale, moving into a trust or LLC, etc.
    Sale of royalty, property, and/or mineralsCopy of the recorded conveyance filed of record in the county where the property is located.
    Owner passed away with a Will that will be probated in Montana to transfer to the heirs
    • Death Certificate
    • A conveyance from the estate (i.e. Deed of Distribution, Assignment, etc.) recorded in the county where the property is located.  
    Owner passed away with a Will that will be probated in a state other than MontanaIn order for the property to transfer to the heirs, an ancillary probate will need to be done in Montana.  If this is economically unfeasible, you may wish to pursue completing a PDH, as described above.

     

    Changes dealing with a Trust
    The grantor of a living/revocable Trust died, and it is now irrevocable.  
    • A copy of the trust, naming the new trustee(s)
    • If the payments were previously being paid directly to the deceased individual, rather than the trust, then a copy of the recorded conveyance document (deed) from them into the trust
    One of the grantors of a living/revocable Trust died, but the surviving trustee will now be using their Social Security Number 
    • Death Certificate
    • A new W-9
    • A transfer order will need to be completed
    Dissolution of the Trust
    • Copies of the documents dissolving the trust
    • Copy of the recorded conveyance filed of record in the county where the property is located.

     

    Acquisitions
    Purchases and/or Gifts 
    • Copy of the recorded conveyance filed of record in the county where the property is located
    • If an entity is involved (i.e. a trust, corporation, LLC, etc.), then evidence of signature authority for those signing the transfer documents is required
    Change in Ownership because of divorce
    • Complete copy of the divorce decree and recorded conveyance filed of record in the county where the property is located
    Owner passed away with a Will that will be probated in a state other than Montana

    In order for the property to transfer to the heirs, an ancillary probate will need to be done in Montana.  If this is economically unfeasible, you may wish to pursue completing a PDH, as described above.

     

    Frequently asked questions

    No; unfortunately it doesn’t matter where the owners live/lived, Montana Code Annotated applies, and that is not our state law.  Articles of conveyance must still be recorded.
    Unfortunately, no; in order to be legal, their property in Montana must be legally conveyed (transfer the title) and recorded at the courthouse in the county where the property is located.  This generally means an ancillary probate must occur.
    Unfortunately, no; our staff in the Lands Department aren’t attorneys, and do not practice law.  Within reason, we will assist you in providing what information we readily have on hand that will help you and your lawyer. As an example, we help complete the land description blank on affidavits.
    At some point in the land’s history, the mineral rights were separated from the surface, through a sale or some other means. They then were most likely leased, acquired through purchase or inheritance, etc. until they belong to whomever owns them today. You may wish to contact a land service company or possibly a title company if you want to know who owns the mineral rights under your land. The County Clerk and Recorder’s office where the minerals are located may be able to help you as well.
    Revenue payments are suspended when we find out about a change in status, and are held in escrow; eventually, after about five years, they are turned over to the State of Montana through a process called escheatment.  The State will release funds to properly identified owners, if notified.  If not claimed, they become part of the general fund.
    Yes.  Some people and entities are willing to buy them.  In certain instances, NorthWestern Energy has been willing to purchase them.  If you are interested in looking into that, hit this button (Link to e-mail here).
    The term of the lease is stipulated in the originating document, but most state that if there is a producing well on the lease, it is considered, “held by production”, and will continue until such time as it is plugged and abandoned.
    Believe it or not, people have falsified documents before in order to obtain a financial gain.  It is best for all parties involved to utilize the system in place so no one unfairly takes advantage of someone else.
    No; there are private businesses that can provide that service to you.

    Different types of interests

    1. Mineral Interest – Someone with this type of interest holds title to the minerals on a property under lease.  They receive royalty payments, which are a portion of the proceeds from the well’s production, as defined by the royalty provision in their negotiated oil and gas lease.
    2. Non-Participating Royalty Interest (NPRI) -A share of production, or the value or proceeds of production, free of the costs of production, carved out of the mineral interest. Nonparticipating royalties are often retained by fee simple owners or mineral-interest owners who sell or convey their mineral rights. NPRI owners do not have “executive” rights, meaning they cannot sign an oil and gas lease. 
    3. Overriding Royalty Interest (OR) - A share of production, or the value or proceeds of production, free of the costs of production, carved out of a lessee’s interest under an oil and gas lease. Overriding-royalty interests are frequently used to compensate those who have helped to structure a drilling venture. An overriding-royalty interest terminates when the underlying lease terminates.
    4. Working Interest (WI) – Working Interest (or Operating Interest) includes the right to explore, develop, and produce minerals granted by an oil and gas lease but also the obligation to pay expenses (including royalty payments).  It may also be called a Leasehold Interest, although that term generally is only applied to working interests on a lease that hasn’t yet been developed. 

    5.  Royalty Interest (RI) – Royalty Interest owners are entitled to a percentage of the well’s revenue without having to pay for any of the expenses associated with drilling or operating the well.

     

     

     

    Glossary

    Abandoned well

    A well permanently closed off when no viable hydrocarbons are discovered or it is depleted and no longer capable of producing profitably. The well is permanently plugged downhole, producing subsurface formations have been isolated and permanently plugged and is basically permanently decommissioned.  May also be referred to as “Plugged and Abandoned”.

    Article of Conveyance

    A real property conveyance is the transfer of ownership or title to real property from one person or organization to another. The article of conveyance may take the form of a deed, an assignment or a transfer of title and is deemed complete when the transfer of ownership is registered in public records, and the new owner has taken possession of the property.

    Easement

    Any right over private land associated with a right to use of the land.

    LandmanA position in the oil and gas industry responsible for acquiring and maintaining oil and gas leases, curing title, negotiating arrangements for development, and managing leased properties. The term, “Landman” is not gender specific.
    Plugged well A well that after being drilled is determined not be profitable, it is then plugged with cement and the well casing cut off and capped below surface elevation. Normally these wells are cut off and capped a minimum of 4 feet below surface level so that it doesn’t interfere with any future surface usage. Plugging a drilled well is done under the rules and regulations of the Montana Board of Oil and Gas Conservation to prevent any groundwater/aquifer contamination from fluids seeping into or out of the drilled wellbore.
    PoolingBringing together, either by voluntary agreement (voluntary pooling) or by order of an administrative agency (compulsory or forced pooling), small tracts or fractional interests to drill a well. Pooling is usually undertaken to comply with well-spacing requirements established by state law or regulation. Pooling is usually associated with drilling a single well and operating that well by primary-production techniques, while Unitization usually involves numerous wells using secondary or tertiary-recovery techniques, though the terms are sometimes used interchangeably.
    Shut- InWhen a producing well is temporarily shut off because of economic or maintenance conditions.  There may be a shut-in royalty payment if there is a clause in the lease.
    Surface InterestAll rights to property other than the mineral interest. The surface interest has the right to the surface subject to the right of the mineral-interest owner to use it to search for, develop, and produce minerals. The surface interest is entitled to all substances found in or under the soil that are not defined as minerals per the vesting document.

     

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