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TERMS EXPLAINED
Shut in royalties 101, a basic primer
The term itself is a misnomer. Shut in
royalties are not
royalties at all. They are payments in lieu of royalties.
Let's start at the beginning of a mineral lessor-lessee
relationship. The lessee gas company obtains the right to
drill upon, and produce from, the lessor's land by making an
initial payment called a bonus. A typical bonus payment will
procure this right for, say, three years. There is sometimes
an option to extend, for perhaps two additional years, with
payment of an additional amount.
But what about after this time period expires? There are two
possibilities (1) The company IS PRODUCING gas from the
subject land. In this case the lease stays in force so long as
gas is being produced and royalties being paid. (2) The
company IS NOT PRODUCING from lessor's land. In this case the
lease expires and the mineral rights revert to lessor.
Now let's look closer at the first scenario - gas is being
produced and royalties are being paid. What if, after a time,
conditions change and cause the gas company to want to stop
producing from the subject land? It could be a drop in market
prices, it could be a shift in the company's marketing plan,
it could be an anticipated future increase in prices. Whatever
it is, it causes the company to cease production from the
lease. That means royalties stop. That, absent terms to the
contrary, would terminate the lease.
But neither the gas company nor the property owner may want
the lease to end. There's a well drilled, probably attached to
a pipeline, and a working relationship between the parties.
With a subsequent market change, production may be feasible
again.
How can the lease be kept alive?
Payment of a shut in royalty is how. The gas company pays
lessor some amount per acre to retain dominion over lessor's
minerals. How much? It varies, and it's important. It's also
negotiable. A coalition's experts know the bounds and
acceptability of shut-in royalty provisions, and very few
individuals do. This is another of the many reasons a property
owner benefits from membership in a coalition.
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WHO ARE OUR LEADERS AND WHAT ARE THEIR
QUALIFICATIONS?
The leaders of this organization are the members from
each neighborhood that have stood up and are bringing
you the information to stay united and are helping to
make sure that
all of their neighbors are active and involved with the
coalition. Their qualifications are being interested in
their
community and wanting the best terms that can be
reached for all of us. Gas drilling is here, it's going
to be a part of our lives, we need to make sure that we
all do this in the
best possible manner. |
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How can I join and learn more about the BMRO?
Our website at www.BMRO.com has an online form to complete to join, and
electronic and paper LOIs (letters of intent) are available.
The website will be updated as new information is added,
so check back frequently. Although membership in the coalition is not required,
the more people we have as members, the
better our negotiating strength and results will be.
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