PASC Committee Discussion

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Question:

Are Mineral Lease rentals chargeable to the joint account?

Answer from PASC JIR Committee:

Mineral lease rentals are a joint account charge if the operator is the lease payer on behalf of the parties.

The maintenance of title provision of the CAPL Operating Procedure has always recognized that there was a duty on the part of the Operator to maintain title documents in good standing by paying rentals on behalf of the joint account. Chargeability is a natural consequence of that duty, and this has always been reflected in the PASC document.

Typically, only one of lessees pays rentals for the mineral rights to the applicable lessor. While this representative will typically be the operator, it isn't necessarily the Operator (i.e., the joint lands cover only a portion of the strata held under the applicable title document in circumstances in which a party holds a 100% interest in the other strata, for example).
As the rentals are part of the carrying costs of the rights, the party making that payment has a legitimate expectation that it will recover proportionately from other owners who benefit from the title document being retained in good standing. Your land department will confirm that companies typically seek to recover these amounts from the beneficiaries of the payment through a rentals billing process.

Insofar as all rights are held in uniform interests, this is a straightforward process. The party making the payment may use the JV billing process to recover the costs incurred by it on behalf of the other owners or invoice manually.

It is much more complicated when the rights are not held in uniform interests. There is no uniform approach in addressing the responsibility for rentals in this circumstance, other than to expect that the party initially making the payment will seek to have other owners share that expense on some logical basis that one hopes it applies on a consistent basis when administering title documents.

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