N.M. Admin. Code § 19.2.100.68 - AMENDMENT OF LEASE TO LOWER ROYALTY RATE FOR OIL WELLS UNDER CERTAIN CONDITIONS
A. Purpose
- eligibility: The records owner of an oil and gas lease issued by the
commissioner of public lands whose lease is maintained in good standing
according to the terms and conditions of the lease and all applicable statutes
and regulations, may apply to the commissioner for an amendment to the lease
for the purpose of changing the royalty rate on oil produced from a specified
oil well. Any well that produces on a lease basis or as a communitized or
unitized property is eligible for the lower rate. Multiple wells from the same
lease, communitization or unit may be submitted for approval under one
application. Communitized or unit wells must qualify individually for the lower
royalty rate.
B. Application,
requirements, and information to be furnished. An application for a change in
royalty rate shall be on a form prescribed by the commissioner and shall be
accompanied by the application fee as set forth in the schedule of fees. For
each oil well, the application shall:
(1)
show that the oil well has produced oil attributable to a communitization, unit
or lease premises, and:
(a) if the production
is from formations shallower than 5,000 feet, has produced less than an average
of three barrels of oil per day during the preceding 12 months and has not
averaged over five barrels per day for any month during the preceding 12
months; or
(b) if the production is
from formations 5,000 feet deep or deeper, has produced less than an average of
six barrels of oil per day during the preceding 12 months and has not averaged
over 10 barrels of oil per day for any month during the preceding 12 months;
and
(2) include a
statement that to the best of the applicant's knowledge and experience the well
is not capable of sustained production limits specified in Paragraph (1) of
this Subsection.
(3) provide data
and describe efforts to:
(a) negotiate lower
rates paid to other royalty owners and overriding royalty owners in the oil
well; and
(b) minimize the costs of
operating the well; and
(4) include any other fact which may justify
a lower royalty rate.
C.
Commissioners approval. Upon receipt of an application, the commissioner shall
review the information submitted as well as other, independent information
obtained by the commissioner and shall agree to amend the lease to a lower
royalty rate for oil produced from the oil well if, in the commissioner's sole
discretion, the commissioner finds that:
(1)
the operator has taken reasonable steps to minimize the operator's costs of
operating the oil well;
(2) the oil
well will likely be plugged and abandoned in the near future, with a resulting
loss of reserves, if operating costs are not reduced further;
(3) the oil well will produce for a longer
period, and the amount of oil produced will ultimately be larger, if the
royalty rate is lowered; and
(4) a
lower royalty rate will actually maximize revenue to the trust
beneficiaries.
D.
Applicable royalty rate, effective date. The lower royalty rate agreed to under
this Section shall be equal to five percent and, except as provided in
Subsection G of this Section, shall be valid for a period of three years, after
which time the record owner of the oil and gas lease may submit a written
request for an extension which, if approved pursuant to Subsection C of this
Section, shall be valid for an additional three year term.
E. Accounting and reporting of oil royalties.
Production, royalties and taxes for oil produced from any well for which a
lower royalty rate has been granted under this Section shall be reported
separately from other oil wells, under the PUN-lease business rules of the oil
and gas royalty filer's kit utilized by the oil and natural gas administration
and revenue database (ONGARD) system.
F. Form of application. Applications for a
lower royalty rate under this Section shall be submitted on a form provided by
the commissioner.
G. Termination of
lower rate. The effective period for a lower royalty rate, approved pursuant to
this Section, shall terminate and the royalty rate specified in the lease shall
be applicable if the commissioner determines, in the commissioner's sole
discretion, that the oil production has significantly increased through well
workover, recompletion or other means, so that the well would no longer qualify
on an annual basis for a lower royalty rate.
Notes
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