|(a) During the primary term. If lessee completes a shut-in
well during the primary term, lessee may hold the lease by resuming delay
rental payments. See §9.34(b)(1)(2) of this title, (relating to Drilling
and Reworking Operations).
(b) After the primary term has expired.
(1) When a shut-in well is located on the premises, but the
lease is being otherwise held in effect under the lease, no shut-in royalty
is needed to maintain the lease.
(2) If a lease is not being otherwise held in effect,
contains a shut-in provision and has a shut-in well located on the premises,
then failure to make a timely, full shut-in royalty payment will result in
the lease automatically terminating on the date the shut-in payment is due
under subsection (d)(1) of this section. However, if lessee timely pays a
full shut-in royalty under this section, the lease will be held for one year
beginning on the effective shut-in date. Thereafter, the lease will terminate
automatically on an anniversary date of the effective shut-in date, unless
on or before such anniversary date lessee pays a timely subsequent shut-in
royalty under subsection (d)(2) of this section or on or before 60 days after
such anniversary date lessee commences drilling or reworking operations or
actually produces oil or gas.
(3) If a lessee fails to pay or improperly pays a shut-in
royalty, no action by any lessor, including the state or an owner of the soil
on Relinquishment Act property, may ratify, re-grant or revive the terminated
lease or may estop the state from asserting lease termination.
(c) Full payment of shut-in royalty. The lease sets the amount
of the shut-in royalty payment and the full amount must be timely paid to
all lessors to hold the lease. If the lease has several interest owners and
any one such owner fails to pay its proportionate share of the full shut in
royalty amount set in the lease, then the entire lease will terminate. Under
the October, 1997 state fee form, the shut in royalty amount is the greater
of the two following amounts:
(1) double the annual delay rental provided in the lease (which
amount may be subject to proportionate reduction if the lease contains such
a provision and if acreage is released); or
(2) $1,200 for each shut-in well.
(d) Timeliness of Shut-In Royalty Payment to the State.
(1) For lessee to maintain a lease by paying a shut-in royalty
payment, the GLO must receive such payment on or before the latest of the
(A) the expiration of the primary term;
(B) 60 days after the date the well ceases to produce oil or
(C) 60 days after the date lessee completes drilling or reworking
operations in accordance with the lease.
(2) Subsequent shut-in royalty payments are due as
established in subsection (h)(1) of this section.
(3) If the date when a shut-in royalty payment is due
falls on a Saturday, Sunday or a legal state or federal holiday, shut-in royalty
payments may be timely received on the next calendar day which is not a Saturday,
Sunday or a holiday.
(4) Under the standard business practices and/or procedures
of the GLO, the date that the GLO stamps, punches, or otherwise marks on the
shut-in royalty payment, check, draft, stub, or envelope establishes the date
of actual receipt by the GLO.
(5) Payment of a shut-in royalty to the GLO shall be considered
timely, irrespective of the date of actual receipt, if lessee notifies the
GLO in writing of its claim that its lease has been maintained under this
subparagraph and then establishes that:
(A) payment was dispatched to the address found in §9.32(c)(3)(A)
of this title, (relating to General Responsibilities of State Lessees) by
certified or registered mail or equivalent proof;
(B) an acceptance form was initialed by an employee of the
United States Post Office, a common carrier, or its equivalent and the date
stamped by the United States Post Office, a common carrier, or its equivalent
(not including private postal meters) showing the letter was received and
accepted at least 14 days before it was due;
(C) payment is actually received by the GLO no later than 30
days after it was due; and
(D) no intervening third party has acquired any of the oil
and gas interests originally leased by lessee
(e) Affidavit required. Upon receipt of a shut-in royalty,
the GLO will send a shut-in affidavit to the party paying the shut-in royalty.
The affidavit must be completed and returned to the GLO. Failure to complete
and return the affidavit as required may result in a penalty under §9.32(c)(3)(B)(iii),
and/or forfeiture of the lease.
(f) Shut-in royalty on pooled leases. A shut-in well located
within the boundaries of a pooled unit will be considered to be a shut-in
well located upon each state lease within the pooled unit. The leases included
within the pooled unit shall terminate unless shut-in royalties are paid on
each lease wholly or partially within the unit, according to the terms of
(g) Intermittent production. A well on a lease maintained in
force by shut-in royalty may be produced intermittently and shut in as often
as desired. No additional shut-in payment is required during the year that
the lease is held by shut-in royalty. However, such intermittent production
and shut-ins shall not operate to change the due date for subsequent shut-in
royalty payments under subsection (h) of this section or the date upon which
actual production or additional drilling must occur under subsection (b)(2)
of this section. Royalty also remains due on oil and gas that is intermittently
(h) Subsequent shut-in payments.
(1) For a maximum of five years after the effective shut-in
date, lessee may pay subsequent annual shut-in royalties meeting the requirements
set in this section on or before each anniversary of the effective shut-in
date. Each such payment will maintain the lease for an additional year. The
right to make subsequent shut-in royalty payments may end as described in
subsection (i) of this section.
(2) At the end of the maximum five year shut-in period
provided for in the lease, the lease will terminate for cessation of production
unless the operator or lessee begins actual production of oil or gas from
the previously shut-in well or wells or otherwise maintains the lease in effect.
After obtaining production from a previously shut-in well, the well may be
shut in again for a maximum term of five years as provided in the lease and
subsection (h)(1) of this section.
(i) Compensatory royalty on shut-in well.
(1) Encroaching well adjacent to shut-in well. If a state lease
is maintained by a shut-in royalty when production from an encroaching well
is sold and delivered, lessee's right to maintain the state lease by payment
of a subsequent shut-in royalty ceases but the lease remains in effect until
the shut-in royalty period expires. The lease may be held in effect after
such date for four additional and successive periods of one year each by paying
monthly compensatory royalties;
(2) Amount of the compensatory royalty.
(A) The monthly compensatory royalty payment is calculated
using the royalty rate set in the state lease that has the shut-in well and
the market value of monthly production from the encroaching well.
(B) If the annual total of the monthly compensatory royalty
payments is less than what the annual shut-in royalty would have been for
that time period, lessee shall pay additional compensatory royalty equal to
(3) Due dates for compensatory royalty.
(A) . The first monthly compensatory royalty is due on the
last day of the second month after the shut-in royalty period expired. This
first compensatory royalty is computed using the encroaching well's production
for the month immediately after the shut-in royalty period expired. Thereafter,
monthly compensatory royalties are due by the last day of each month and are
computed on the encroaching well's production for the preceding month.
(B) For each year that monthly compensatory royalties are paid
under subsection (i)(1) of this section, lessee shall remit additional compensatory
royalty owed under subsection (i)(2)(B) of this section within 30 days of
the end of each such year.
(4) Limited effect of compensatory royalties. Payment
of compensatory royalties under this section does not satisfy the obligations
to drill offset wells or of reasonable development. To pay a compensatory
royalty in lieu of an offset obligation, written approval from the commissioner
must be obtained under §9.37(c) of this title, (related to Offset Well
Obligations & Compensatory Royalties).