| (a) In-kind royalties and reports. Producers meeting
their royalty obligations by delivering the state's royalty in-kind
shall contact the General Land Office (GLO) for specific instructions
for making and reporting in-kind royalties. Purchasers of the state's
oil or gas in-kind must make the payment for this oil or gas separately
from any payment of monetary royalty.
(b) Monetary royalties and reports
(1) Basis for computing royalties.
(A) Gross proceeds. Lessees shall compute and pay oil
and gas royalties due under each lease on the gross proceeds received
by the seller, including amounts collected to reimburse the seller
for severance taxes and production-related costs. Lessees shall not
deduct production or severance taxes, or the cost of producing, processing,
transporting, and otherwise making the oil, gas, and other products
produced from the premises ready for sale or use.
(B) Volume subject to royalty.
(i) General. Royalties are due and payable by all lessees
on 100% of each lease's gross production of oil and gas unless the
lease contains language expressly exempting certain dispositions of
oil and/or gas from state royalties.
(ii) Oil sales and stocks. As a matter of convenience,
during periods of regular sales, the GLO will permit lessees to pay
monthly oil royalties based on the number of barrels sold (or otherwise
disposed of) in a given month rather than on the gross production
as may be required by the lease. Unless the lessee is otherwise notified
by the GLO, no royalties are payable on lease stocks until such stocks
are disposed of either by sale or otherwise. The GLO reserves the
right to require at any time, or from time to time, that lessees pay
royalties on gross production rather than on barrels sold. The GLO
requires that lessees pay royalties on existing stocks when there
have been no sales from such stocks for several months.
(C) Plant products. Lessees shall calculate the volume
and value of plant products subject to state royalty in accordance
with the lease under which the gas is produced and processed and this
volume and value shall never be less than the minimum percentage specified
in the lease. In cases where the lease does not specify the manner
in which lessees are to calculate plant product royalties, then the
volume and value of plant products subject to state royalty shall
be that volume and value for which settlement is being made to the
producer, under a gas contract prudently negotiated between the producer
and processor. When gas is processed for the recovery of liquid hydrocarbons
or other products, lessees shall pay royalties on residue gas and
plant products in an amount not less than the royalties which would
have been due had the gas not been processed.
(D) Market value. Nothing in this subsection shall
limit or waive the right of the state to receive its royalties based
on market value of the oil and gas produced, if authorized by the
lease, unit agreement, judgment, or other contract authorized by law.
(E) Determination of market value.
(i) For the purpose of computing and paying royalties
to the state based on market value, the market value shall be presumed
to be the gross proceeds received pursuant to a bona fide contract
entered into at arm's length between nonaffiliated parties of adverse
economic interests.
(ii) If a contract is not negotiated at arm's length,
or was between affiliated parties, the presumption that market value
is equal to gross proceeds shall not apply. In this situation, the
lessee has the burden to establish that royalties paid to the state
are based on market value.
(iii) The commissioner may overcome the presumption
established under clause (i) of this subparagraph and assess additional
royalties due by establishing a different price based on other sales
in the general area which are comparable in time, quality, volume,
and legal characteristics. If some of this information is not available
to the commissioner, an assessment will be based on the best information
available.
(iv) A lessee may challenge an assessment of additional
royalties due by submitting information which establishes the prices
used for comparison by the commissioner involve products of significantly
different quality; were based on contracts to deliver significantly
different volumes or for different terms; were not from a relevant
market; were derived from an area in which deliverability is significantly
different; or by presenting any other information which could establish
a more accurate market price. However, under no circumstances will
the state's royalty be computed on less than gross proceeds received,
including reimbursements received for severance taxes and production-related
costs.
(v) Parties are affiliated under this subsection if
they are related by blood, marriage, or common business enterprise,
are members of a corporate affiliated group, or where one party owns
a 10% or greater interest in the other.
(vi) The term "general area," as used in this subsection,
means the smallest geographical area which contains sufficient data
to establish a market price. Examples include a unit, a field, a county,
or the applicable RRC district.
(vii) For the purpose of computing and paying oil royalties
to the state based upon a market value determined by the highest posted
price, that phrase is defined as the greater of:
(I) the highest price available to the producer; or
(II) the gross price posted by the purchaser of the
oil, less a reasonable transportation allowance after sale and delivery
if the price bulletin reflects on its face that the purchaser will
deduct a marketing or transportation allowance, and a transportation
allowance is actually deducted by the purchaser from its gross price.
(viii) For the purposes of clause (vii)(I) of this
subparagraph, a price will be presumed to be available to the producer
if it is offered in the field where the lease is located at the time
of sale. A producer may overcome the presumption by submitting evidence
that the price is not actually available to the producer. The terms
"available" and "actually available," as used in this subsection,
mean that a price is being offered to nonaffiliated parties by posting,
contract listing or amendment, or otherwise and that if a producer
presented a barrel of oil to an entity offering said price, assuming
all quality specifications for the price were met, that producer would,
in fact, receive that offered price.
(ix) Clause (vii) of this subparagraph shall not be
construed to allow the lessee, when calculating royalties to the state,
to make any deductions for the cost of producing, processing, or transporting
the oil prior to its sale and delivery.
(2) Royalty payments and reports.
(A) Mode of payment. Except as provided in subsection
(a) of this section, relating to payments made in-kind, and subject
to clauses (i) - (vi) of this subparagraph, relating to mandatory
electronic funds transfer, lessees may pay royalties and other monies
due by cash or check, money order, or sight draft made payable to
the commissioner. Lessees may also pay by electronic funds transfer
or in any manner that may be lawfully made to the state comptroller.
Information regarding alternative payment methods may be obtained
from the GLO Royalty Management Division. Payors are required to make
payments by electronic funds transfer in compliance with 34 Texas
Administrative Code Chapter 15 in the circumstances outlined:
(i) For leases executed or amended after May 11, 1989,
but before September 1, 1991, payors that have made over $500,000
in a category of payments, defined in clause (iv) below, to the GLO
during the preceding state fiscal year shall make payments of $10,000
or more in the current fiscal year for those leases and in that category
by electronic funds transfer.
(ii) For leases executed or amended after August 30,
1991, but before June 9, 1995, payors that have made over $250,000
in a category of payments, defined in clause (iv) below, to the GLO
during the preceding state fiscal year shall make payments of $10,000
or more in the current fiscal year for those leases and in that category
by electronic funds transfer.
(iii) For leases executed or amended on or after June
9, 1995, payors that have made over $25,000 in a category of payments,
defined in clause (iv) below, to the GLO during the preceding state
fiscal year shall make all payments in the current fiscal year for
those leases and in that category by electronic funds transfer.
(iv) For purposes of clauses (i) - (iii) of this subparagraph,
each of the following is a separate category of payments:
(I) royalties (including shut-in and minimum royalties);
(II) penalties;
(III) other payments to the state agency, excluding
interest and extraordinary payments such as payments made in settlement
of litigation.
(v) The GLO anticipates that those payors that have
exceeded the threshold sums set out in clauses (i) - (iii) of this
subparagraph in the preceding state fiscal year will also exceed those
sums in the current state fiscal year. The application of clauses
(i) - (iii) to a specific payor may be waived at the commissioner's
discretion to the extent allowed by law, upon a showing that a payor
will not exceed the threshold sums set out in clauses (i) - (iii)
in the current fiscal year, or for other good cause.
(vi) The GLO will notify each payor to whom this subparagraph
applies in compliance with 34 Texas Administrative Code Chapter 15.
(B) Information required with royalty payments. Lessees
shall submit all royalty payments in a manner which identifies the
assigned GLO lease number, the annual submission certification number,
if any, and the amount of oil and gas royalty being paid. Royalty
payments not identified by the lease number and the annual submission
certification number, if any, shall be considered delinquent and shall
be subject to the delinquency provisions of paragraph (3) of this
subsection.
(C) Required reports. Lessees shall provide, in the
form and manner prescribed by the GLO, production/royalty reports
(Form GLO-1 for oil and condensate and Form GLO-2 for gas), other
required reporting documents for gas or oil and condensate, and other
supporting documents required by GLO to verify gross production, disposition,
and market value of the oil and condensate, gas, and other products
produced therefrom. Reporters for leases which the GLO has approved
for annual royalty payments may submit such reports on an annual basis
as well after receipt of an annual royalty certification number. Parties
approved for annual reporting or payment shall notify the GLO in writing
within ten business days of a complete release, forfeiture, termination,
assignment, or change of operator or payor of a lease approved for
annual reporting and payment. Failure to comply with the statutes
and the reporting requirements of this chapter may subject a lease
to forfeiture, delinquency penalties, or both.
(D) Timely receipt of royalty payments and reports.
(i) For the purpose of this subsection, the GLO will
consider a report timely received if the report:
(I) arrives postpaid and properly addressed; and
(II) is deposited with the United States Postal Service
or any parcel delivery service at least one day before it is due and
such deposit is evidenced by a postmark, a postal meter stamp, or
a receipt.
(ii) For the purpose of this subsection, the GLO will
consider a royalty payment timely made if:
(I) the payment is received by electronic funds transfer,
it is received on or before the date it is due (please be advised
that delivery of payment to the state comptroller's office does not
satisfy this requirement. Due to the time required by the comptroller's
office to process a payment and forward it to the GLO, payors are
strongly encouraged to submit payments to the comptroller's office
before 6:00 p.m. CST on the business day preceding the business day
on which the payment is due).
(II) the payment is not made by electronic funds transfer,
it arrives postpaid and properly addressed and it is deposited with
the United States Postal Service or any parcel delivery service at
least one day before it is due and such deposit is evidenced by a
postmark, a postal meter stamp, or a receipt.
(iii) If a royalty payment or report is due on a Sunday
or a legal state or federal holiday, then lessees shall ensure that
such payment or report is either received by the GLO on the next calendar
day which is not a Sunday or a holiday, or postmarked or stamped prior
to the next calendar day which is not a Sunday or a holiday.
(E) Oil and condensate royalties--due date.
(i) Lessees shall ensure that all oil and condensate
royalties, except royalties approved by GLO to be paid on an annual
basis, are timely received by the GLO on or before the fifth day of
the second month following the month of production.
(ii) Upon application to and written approval by the
GLO, future royalties attributable to leases for which oil, condensate,
and gas royalty due for the immediately preceding September 1 to August
31 period equaled $3, 000 or less may be paid on an annual, rather
than monthly, basis. A party who is both a payor and a reporter for
a lease shall submit both payments and reports on a monthly or, if
the GLO grants approval, an annual, basis.
Cont'd... |
