oil and gas unclaimed royalties

What to Do with Unclaimed Royalties?

A common dilemma that operators face in the Texas oil and gas industry is how to handle suspended royalties. Royalties may be suspended for several reasons, including outstanding curative issues, and most commonly, the inability to locate the recipient or payee for said royalties. Such instances are governed by Title 6 of the Texas Property Code.

The Statute

According to Sec. 74.705 of the Texas Property Code, A holder who fails to pay or deliver property within the time prescribed by this chapter shall pay to the comptroller interest, at an annual rate of 10 percent, on the property from the date the property should have been paid or delivered until the date the property is actually paid or delivered.

Sec. 74.706 of the Texas Property Code states that a penalty equal to five percent of the value of the property due shall be imposed on a holder who fails to pay or deliver property within the time prescribed by this chapter. If a holder fails to pay or deliver property before the 31st day after the date the property is due, an additional penalty equal to five percent of the value of the property due shall be imposed.

However, pursuant to Sec. 74.707, the comptroller may waive penalty or interest, in whole or in part, imposed on delinquent property if the comptroller determines that the holder has made a good faith effort to comply with Chapters 72-75, or for other good cause.

Abandonment and Notice

According to the Texas Comptroller, the abandonment period for royalties is three years. A holder is deemed as any business in possession of property belonging to an individual or business, i.e. oil and gas companies. If a property is deemed abandoned as of March 1, holders are required to file a report for abandoned property via the electronic format of the National Association of Unclaimed Property Administrators (NAUPA) on or before July 1, and annually thereafter.

The State of Texas is a Current to Pay State, which means that if there are funds that are dormant, the operator can escheat those funds as well as any recently accrued funds.

Once dormancy is determined, property owners must be notified of said dormant accounts. All owners with more than $250 in the annual report must be sent a final notice via mail or email that their property may be submitted to the Texas Comptroller. This notice is due 60 days prior to the submission of the annual report.

Written by Bojan Muranovic, Senior Attorney at KMD Law


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