“Why won’t the oil and gas company pay me?” This is a question which clients frequently ask me. I find that the answer usually involves a missing probate in the chain of title or incomplete funding of the client’s revocable living trust.
“Probate” refers to the court-supervised process of distributing the property and assets of a deceased person to his or her rightful heirs. If someone dies owning mineral interests, their heirs do not have legal title to those mineral interests until the probate judge issues a final decree of distribution. Sometimes, oil and gas companies will allow the heirs to sign a lease based on an affidavit of heirship. However, unless the affidavit of heirship has been recorded in the county land records for at least ten years, then oil and gas companies almost always withhold royalties from a producing well until the probate is finished.
Another situation leading to non-payment of royalties is incomplete funding of a client’s revocable living trust. The mere execution of a revocable living trust is not sufficient to transfer the client’s property and assets to the revocable living trust. The client must fully fund the revocable living trust, i.e. re-title all of the property and assets in the name of the revocable living trust. For mineral interests, this means the client has to sign and record new mineral deeds. Unfortunately, this is step is often overlooked during the estate planning process.
Although oil prices are currently lower, substantial money can be lost if there are problems in receiving royalty payments. If you believe that you are not receiving oil and gas royalty payments to which you are entitled, consider whether there is an issue regarding probate or funding of your revocable living trust.