Expert: Frederick M. Scott - 10/27/2007
Hi Frederick, I don't know much about natural gas wells, when they are actually considered "producing" wells, and was wondering when the royalty checks actually start coming after the well begins producing. Appreciate your response.
Dan, in Oklahoma (my state) and in most other states, the lessee has six months from first production to pay the royalty from the first month’s production. Often, the first check will contain the first several months’ production and thus will be bigger than normal.
You can find out if a well has started producing by calling the operator's "division order" department. If a well has started producing, a division order analyst will be assigned to figure out who owns what and begin payment. They are often some of the first people to know when a well starts producing. Of course, if you live next to the well, you can likely tell that yourself.
Hope this helps you out some.
Frederick Scott CMM
Follow Up: A well is "producing" when actual gas is being sold from the well in "paying quantities". i.e. in quantities large enough to justify the costs of continuing to operate the well, which means the operator must be making at least a small profit on the sales. Merely finishing the drilling of a well is not the same as "producing" the well. Gas must be flowing before it's considered producing. If enough is flowing to generate revenue for the operator in excess of lifting costs and royalty burden, then well is said to be "producing in paying quantities" and you will receive a royalty check for as long as that continues. Sometimes a well can produce small amounts of oil and gas for a few days that will not be enough to justify continued operating costs, or even to bother to sell it. In such cases the well may be technically "producing" but will not be so for long and so you may not even get a check if none is sold.