Montana oil and mining journal. [volume] (Great Falls, Mont.) 1931-1953, 1936-02-29
Different Kinds Of Royalties

ed. With it goes Mr.. Jones' royalty.
Then subsequently another company leas-
es the land and drills to a deeper hOrt-
zOn, bringing In more production.
Whereas the landowners royalty parta-
cipates in this new production, the ex-
pired Jones AZ 20 overriding royalty
does not participate.
If X Company fails TO find oil and
the lease expires either from nOn-pay-
ment of rental or at the end Of the b
year term of the lease Jones is likewise
wiped out.
The wording of the reservation of over
riding royalty, in Jones' assignment to
Y Company is important If he fails TO
word it properly, he may find himself
with a ~ % interest in the operation
In other words, he may have to pay his
proportionate share of the cost of produce
ing the oil. That makes his interest an
operators royalty.
At a time when ''shares" and "stOck'
came into disrepute as a result of abuses
of public financing, many legitimate OPP
orators were forced to find new name
for the interests they sold in their pro-
perties. They chose the name ''royalty"
to sell exactly the same interest as was
formerly called ''stock." In other words,
if a company is capitalized at 100
shares worth 81 per share, and an in-
weston buys one share, he receives 10
of the NET proceeds of the operation.
If he buys 80 of the operators 81 20
and has to pay his propOrtionate share
of the cost of drilling and producing the
oil he hasn't royalty at all, but
camOufIaged unit or share of stock.
In California, particularly, operators
sell form of IeasehOId royalty under
which they limit the deduction. In other
words they provide that the investor
shall receive 10 of all the oil produced
and saved, less 'lifting charge" of not
more than 10 cents per barrel-Or some
other figures. That, again, isn't royalty
despite the fact it is called royalty.
However, a lot of money has been
made by investors in overriding roy
IaIties. The KalispeI-Kevin company
made its miIIiOn-dOIIar dividend record
with overriding royalties: royalties it re-
tanned ON leases taken in pioneer days
of Kevin-Sunburst field. Fulton, Race
snd others took sub-leases, paying the
KalispeIl-Kevin an overriding royalty
which paid tremendous returns.
In Cut Bank field there are lot OF
operators royalties, many of them Iree
OF cost of production and others with
limited participation, have paid thousands
of percent of profit to the investors.
1t is a case where the investor gaanbled
and won. The odds are admittedly much
better for the investor in overriding roy
aIties than is the average stock investment
i'm q small stock cOmany, for the operator
must account to his royalty owners"
monthly and make an actual division
whereas undear corporation or trust he
may be tempted to delay paying dividends
whenever he may find other use for the
money.
State lease overriding royalties are
similar to any other override royalties
The state is the landowner and retains
12Keo. The lessee gets S71z 20. The
lessee frequently assigns the lease to an
operator retaining an overriding royalty.
These ROYALTIES have frequently been sold.
They expire with the lease. The old form
of state lease was for five years.----Theo-
reticaIIy the operator and royalty owner
might be deprived of their property at
the end OF the five-year period but in
practice this was not done The law was
changed so that the operator has a prefer
ence right for renewal of his lease at the
expiration of the term so that In Case OF