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An Analysis of State Oil and Gas Royalty Payment Laws: The Political Process Crosses With the Common Law

Dante L. Zarlengo, Private Oil & Gas Royalties (2003)

Through the years, legislatures in many states, and all states with significant oil and gas production, have passed laws which address the manner in which royalties are to be paid on oil and gas produced in that state.1 Most of these laws are the product of political processes being brought to bear on long time established practices of oil and gas producers and production purchasers. Usually, these laws, at least in their original conception, are designed to change existing practices which were found to be in some way unfair to royalty owners. Therefore, most such laws are considered remedial in nature.2

However, it is evident that the various legislative bodies desired to balance the advantages of large and continuing investment in oil and gas drilling and production in their state with the need for reform in the manner in which royalties on oil and gas production are calculated and paid. In some cases, the laws simply specify a time by which royalty payments must be made. In other cases, a statute directly affects calculation of royalty payments, arguably in derogation of common law, and even as to oil and gas leases long since in effect at the time the statute was passed. Most such statutes purport to do some or all of that, with varying degrees of success.

The degree to which royalty payment laws in the various states can change from one jurisdiction to th