pjc-oil-and-gas-2022-lib

L ESSOR -L ESSEE I SSUES

PJC 303.5

PJC 303.5

Question on Untimely Payment of Proceeds of Production under Natural Resources Code

QUESTION ______ Did Larry Lessee fail to pay Paul Payne proceeds due on production within [ specify number of days in lease or under Texas Natural Resources Code ] days of production? Answer “Yes” or “No.” Answer: _______________ COMMENT When to use. A question on whether royalty payments have been timely made usually will arise under one of two circumstances: (1) the lease at issue contains an express provision stating the time for payment or (2) an action has been brought under Tex. Nat. Res. Code §§ 91.401–.408, which sets out a statutory time for payment. Because most standard-form royalty clauses do not provide a time period for making royalty payments, the instruction for claims brought under leases that do not provide a period for payment of royalty should conform to sections 91.401–.408. If a lease con tains express provisions governing the timely payment of royalties, the instruction should be modified to reflect the terms of the lease. If there is a fact question regarding a good-faith title dispute or if the date of payment is in dispute, an additional question will be needed. For a question on breach of the express royalty provision, see PJC 303.4. Source of question. Under Tex. Nat. Res. Code §§ 91.401–.408, a payor must pay to the payee the proceeds received from the sale of oil or gas production on or before 120 days after the end of the month of first sale of production from the well and no later than 60 days for oil or 90 days for gas after the end of the calendar month in which the production is sold in subsequent months. If payments are not made within these time periods, the payments are not timely, and the payee must pay interest on the payment at the rate provided in the statute. Tex. Nat. Res. Code § 91.403(a). The time period set out in this question or instruction should conform either to the express lease terms or the statutory requirements, whichever is appropriate. See ConocoPhillips Co. v. Koopmann , 547 S.W.3d 858 (Tex. 2018). See Anadarko E&P Co., L.P. v. Clear Lake Pines, Inc. , No. 03-04-00600-CV, 2005 WL 1583506 (Tex. App.—Austin July 7, 2005, no pet.), for a discussion on whether “the owner of the right to produce under an oil or gas lease or pooling order” or the “the first purchaser” qualifies as a payor under Tex. Nat. Res. Code §§ 91.401–.408.

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