You are also invited to call the MMS, Office of Indian Royalty Assistance, at
1(800)982-3226, for assistance.
 

Four agencies in the Department of the Interior share responsibility for managing and protecting Indian mineral interests:

• The Bureau of Indian Affairs (BIA) is responsible for leasing your mineral rights, managing the ownership records, and working with the Office of Trust Funds Management to mail your rent and royalty payments.

• The Bureau of Land Management (BLM) oversees oil and gas drilling and production to assure that precautions are taken to protect both workers and the environment, prevent theft and ensure the government gets accurate reports about production.

• The Minerals Management Service (MMS) collects rent and royalty payments from the oil and gas companies and conducts audits. The MMS uses a centralized computer to verify payments and passes these funds to both BIA and the Office of Trust Funds Management for payment to you.

• The Office of Special Trustee for American Indian’s (OST) Office of Trust Funds Management maintains your Individual Indian Monies (IIM) account and works with the BIA to produce and mail your Oil and Gas Payment Report and royalty payment.
  

In most cases, your first contact should be your Bureau of Indian Affairs (BIA) Area or Agency office. The BIA staff will either answer your question or refer you to the appropriate Minerals Management Service (MMS) office.

The Department of the Interior has offices in several locations, making it possible to ask questions in person. Toll-free telephone numbers are also available for your use.

• Navajo Indian mineral owners may call or visit the Farmington Indian Minerals Office, where BIA staff, as well as, staff from the Bureau of Land Management (BLM) and MMS are available to answer questions.

Farmington Indian Minerals Office
1235 La Plata Highway, Suite B
Farmington, NM 87401-1809
Phone: 1(800)238-2839 or (505)599-8961

• In Oklahoma, call or visit:

MMS Office of Indian Royalty Assistance
4013 Northwest Expressway, Suite 230
Oklahoma City, OK 73116-1697
Phone: 1(800)354-7015

• For the Northern area (Arizona, Colorado, Montana, North Dakota, South Dakota, Utah and Wyoming), call or write:

MMS Northern Office of Indian Royalty Assistance
P.O. Box 25165, MS 3010
Denver, CO 80225-0165
Phone: 1(800)982-3226

Four federal agencies--the Bureau of Indian Affairs (BIA), the Bureau of Land Management (BLM), the Minerals Management Service (MMS), and the Office of Special Trustee for American Indians (OST)--play different roles in ensuring you are paid the royalties you deserve.

• The BIA assists the owners in issuing the lease and setting the royalty rates and rental amounts. BIA ensures that the lease, allotment and ownership records are correct. These records are used to determine the correct royalty payment and to create your Oil and Gas Payment Report.

• The BLM inspects your lease to ensure that the oil and gas is correctly measured, handled, and reported, and to help reduce the chance of theft. It also checks to see if a nearby well is draining oil or gas from your lease. If so, BLM makes the operator drill another well on your lease or requests that MMS make the operator pay the royalties due on the drained production.

• The MMS collects the royalties from oil and gas companies. Each month, its Minerals Revenue Management examines the companies' monthly royalty and production reports to detect errors and problems. For example, MMS examines the timeliness of the payment on your lease and issues bills for interest if the payment is late. MMS audits Indian leases to verify that royalties are correctly paid. Furthermore, MMS has established the Office of Indian Royalty Assistance to more quickly resolve problems and concerns about your royalties.

• The OST Office of Trust Funds Management, in partnership with the BIA, prepares and mails the royalty check and the Oil and Gas Payment Report to you after MMS collects the royalties from the companies.
  

The federal government does not deduct a fee for managing your mineral interests. The Secretary of the Interior has trust responsibility for managing Indian minerals and has delegated this responsibility to the Bureau of Indian Affairs(BIA), the Bureau of Land Management(BLM), the Office of Special Trustee(OST), and the Minerals Management Service(MMS).

These agencies work together and perform different roles in carrying out this trust responsibility.

• The BIA issues the leases and maintains the lease and ownership records.
  

• The BLM oversees the drilling and lease operations.
  

• The OST maintains the Individual Indian Monies accounts and makes the mineral royalty payments.

• The MMS collects royalties and audits royalty payments.
  

It can take two to three months from the time oil or gas is produced and sold from your lease until you get a royalty payment. Legally, and because the industry is complicated, companies can take up to two months to make the payment to the federal government on your behalf. Usually, the federal government processes your payment within two to four weeks after receipt from a company.

Companies need one to two months

Companies have between one and two months from when the oil is sold, to pay the Minerals Management Service (MMS) on your behalf. For example, assume oil was produced and sold from your lease during the first week of May. The oil company would submit the payment to the MMS by the end of the next month (June 30), as required by your lease terms. (Lease terms generally require companies to pay royalties by the end of the month following the month of production and sale.) This gives the company almost two months (most of May and all of June) to make the payment to MMS.

Why do companies require this much time?

The oil and gas industry is very complicated. Many different types of companies are involved in production, distribution and processing. Companies can be producers, operators of an oil and gas field, sellers and buyers, refiners or processors, and pipeline and trucking companies who transport the oil and gas. Because the industry is complex and depends on complex relationships among many companies, industry needs as much as two months to gather, process, verify, exchange, and report information about oil and gas production and sales.

The federal government needs one month or less

Within 24 hours of receipt of the royalty payment from companies, MMS deposits the royalty payments into the U.S. Treasury. (In our example, the money would be deposited no later than July 1.) MMS notifies the Office of Trust Funds Management (OTFM) of the deposits so that OTFM can immediately invest the funds in an interest-bearing account. In a process that takes two to four weeks, MMS, the Bureau of Indian Affairs (BIA) and OTFM verify, reconcile and exchange information. Once these agencies are satisfied that the payment is yours, OTFM and BIA print and mail your Oil and Gas Payment Report and payment check on or about the middle of each month (about July 14). Your royalty payment and the interest you earned are reported on your Oil and Gas Payment Report. If errors or problems are discovered, the Agencies make another payment distribution at the end of the month (on or about July 28). Usually, you will receive only one payment and/or statement per month.

Why does it take the federal government two to four weeks to process royalty payments?

MMS processes about 300,000 transactions per month from thousands of companies. MMS processes 90 percent of these transactions in about 10 workdays (July 1 to 10). While your money is earning interest, MMS enters the company reported lease data into its computer. Then the computer verifies the payor number, lease number, and that the company submitted enough money for the royalty amount. MMS then prepares the lease-level reports for the OTFM and BIA, who take a few days (July 11 to 14) to determine the correct individual ownership and to reconcile the owner information and payments to the lease-level information sent by MMS.

The Minerals Management Service (MMS) receives royalty payments from oil and gas companies. MMS collects and verifies the payments, then passes these payments to the Office of Special Trustee for American Indians (OST) and the Bureau of Indian Affairs (BIA) for final processing and payment to individual Indian owners.

The MMS, OST and BIA work together to provide your Oil and Gas Payment Report. You can use this report to help you understand your royalty payments.

You should first contact the Bureau of Indian Affairs (BIA) Area or Agency Office that has your lease records. The BIA realty staff will either answer your question or refer you to the appropriate Minerals Management Service office.

Common reasons you may not get a check are:

• You may have moved and failed to inform BIA of your new address;
  

• The company may not have sold any oil or gas from your lease that month;
  

• The company may have made an error in making the payment or filing the royalty report;
  

• Your royalty amount may be less than $5, in which case, a check is not prepared, but the amount is transferred to your Individual Indian Monies (IIM) account for later disbursement by Office of Special Trustee For American Indian’s Office of Trust Funds Management and BIA;

• The company may have made an adjustment which reduced your royalty payment to an amount less than $5
  

Royalty payments are tied to both the amount of production and the sales price of oil or gas. Your well production may be decreasing or the price of oil and gas may be low.

Lower Production  Each well has a limited amount of oil or gas. After years of production, less oil and gas is available, and the amounts removed from the well may decrease. Since the amount of your royalties depends on how much oil and gas your well produces, your royalties will be reduced if production declines.

Lower Prices  Royalties for oil and gas are based on market prices. Market prices will go up or down depending on supply and demand in the energy market. For example, the average annual price of oil was as high as $31.77 per barrel in 1981, and as low as $14.24 in 1993. The average annual wellhead price for gas went up to $2.66 per thousand cubic feet (Mcf) in 1984, down to $1.64 per Mcf in 1991, and up to $1.97 per Mcf in 1993. Therefore, even if well production remains the same over the years, royalties may go up or down as market prices increase or decrease.

There are many reasons that your royalties may change from month to month:

Changes in the price of oil and gas affect your royalties

• Sales prices go up or down according to supply and demand in the energy market. Even if the production from your lease is the same from month to month, royalties will change as sales prices go up or down.

Changes in the amount

• The well on your lease may not produce enough oil every month to sell; the lease operator may store small amounts from your well until there is enough to fill up a truck and sell.

• Trucks may not be able to pick up production when weather and road conditions are bad.
  

• The operator may temporarily stop production to fix equipment or to work on the well.
  

• The operator may adjust production to meet higher winter and lower summer demands for natural gas and heating oil.

Corrections to previous reports and payments

• The company may have previously paid you too little or too much royalty. Your check will go up when the company pays you the money it owes. Your check will go down when the company deducts the overpayment from your current royalties. The company can hold back up to 50 percent of your royalties each month until it gets back the money it overpaid you.
  

• The company may have paid rents in advance, but is entitled to "recoup" or apply royalty payments that year against these advance rents. In such a case, you would receive a large rental payment at the beginning of the lease year and then nothing for several months until the advance rental payment is recouped.
  
  
• The lease operator may have changed, which may delay reports and payments.
  

Your uncle may have inherited other interests from other relatives associated with your allotment. Or, you may be sharing your father or mother's interest in the allotment with others, while your uncle has not divided his interest.

However, to verify your interest in this allotment, your first contact should be your Bureau of Indian Affairs (BIA) Area or Agency Office. The ownership records are kept and maintained by BIA, which will have to review these records to fully answer your question.

Your leases were probably issued at different times. The royalty rate depends on the world and domestic supply and demand of oil and gas at the time an Indian tract is advertised and leased for oil and gas development. Prior to 1959, the majority of Indian leases were issued at 1/8 (12 1/2 percent) royalty rate. Since then, most Indian leases have been issued for 1/6 (16 2/3 percent). As oil and gas prices and the demand for oil and gas peaked in the late 1970's and early 1980's, Indian leases were able to command a royalty rate of 1/5 (20 percent) or more.

For more specific information about your lease, contact your Bureau of Indian Affairs (BIA) Area or Agency office. The BIA keeps the original lease files and lease sale announcements. Your royalty rate is documented in these files.

Negative amounts on your royalty statement are usually adjustments or allowances. Oil and gas companies report these amounts to the Minerals Management Service (MMS) when they make royalty payments. You can use the following information and codes to track the changes as they appear on your Oil and Gas Payment Report.

Adjustments

A company must correct any error it makes on a royalty report. To do so, it reports the incorrect amount as a negative amount on a later report. It then enters the correct amount as a positive amount. Both negative and positive entries appear on your Oil and Gas Payment Report and in the "Adjustment" column of the report so that you can track these adjustments. Sometimes the sum of these two adjustments will result in more royalties for you; at other times, it may result in less royalties for you.

The MMS may also, through its audit program or one of its verification processes, have found errors in the company’s reporting. MMS will then direct the company to correct the errors which show on your report.

Allowances

Oil and gas companies can deduct the costs of transporting oil or gas by pipeline or truck from royalties. They deduct these costs using negative entries.

Likewise, companies can deduct processing or manufacturing costs to extract such liquid gases as butane or propane and to remove impurities from oil and gas. They will deduct these costs of processing using a negative entries.

It is not uncommon for oil and gas companies to make correcting adjustments to previously-reported royalty transactions. These adjustments show up in the adjustment column of the report and as negative lines on the Oil and Gas Payment Report. A company will use a negative entry to subtract the incorrect amount and replace it with the correct amount (shown as a positive entry). Where the corrected amount (the positive amount) is lower than what was previously reported, your overall payment may be smaller than what you would otherwise receive.

Oil and gas taken at the lease isn't worth as much as oil and gas taken closer to the consumer. Usually, oil and gas is moved from the lease by truck or pipeline. The federal government allows companies to deduct the reasonable and actual costs of moving oil and gas to markets far from the lease.

Monthly, the Minerals Management Service monitors the transportation allowances taken by companies to ensure deductions are reasonable and within regulatory limits. MMS auditors also verify the accuracy of these deductions in the course of their audits.

Like many federal, state, and private fee lease contracts, many Indian lease contracts allow companies to deduct reasonable and actual processing costs. Processing (manufacturing) costs are the costs of removing impurities and extracting liquid hydrocarbons, such as butane and propane, from natural gas. This deduction is allowed because these costs are normal, reasonable costs of producing these products. While the amount varies by well and lease, MMS generally allows deductions of up to two-thirds of the marketable product's royalty value.

Some Indian lease terms allow the "recoupment" of rents. Think of the annual rental payment as guaranteed, "prepaid royalties" for that year. After you receive the rental payment, the paying company will hold back ("recoup") any monthly royalties earned from the lease until the royalties equal the rent amount you have already received. The company may do this for several months and you would not receive a payment during this time. After that, the company would send monthly royalty payments for any additional production from your lease through the end of your lease year.

If the total royalties for the year are less than the rental prepayment, you won’t receive any additional royalty payments that lease year, but you do get to keep the difference. For example, John Doe Company pays you rent of $2,000 on the first day of the lease year. John Doe then begins calculating royalties of $100 per month. It offsets that amount against the $2,000 it has already paid you. At the end of the lease year, John Doe would have "recouped" $1,200 of the $2,000 prepayment, and paid you $800 more than the actual royalties due. But you would get to keep the remaining $800 for that year. John Doe Company would then have to make a new rental prepayment for the next lease year.

Spacing requirements are a way to manage the number and location of wells in an oil and gas field. Spacing requirements differ for each reservoir since oil and gas reservoirs have varying geological and technical characteristics. To establish the spacing for a reservoir, the state or BLM examine available reservoir information and then determine the amount of space that must be maintained between wells. The state or BLM will issue a Spacing Order which specifies the amount of acreage allocated for one well. For example, a spacing order may limit the number of wells to one well for each 320 acres. This acreage is known as a spacing, drilling or proration unit. An operator who wants to drill an oil and gas well on Indian lands must apply to BLM for approval and comply with these spacing requirements.

How do state requirements affect your Indian lease?

The BLM has responsibility of overseeing and monitoring the technical oil and gas operations on Indian leases. The BLM usually adopts or concurs with state spacing requirements unless BLM determines, after an independent evaluation, that the state requirements are not in the best interest of the Indian mineral owner. When this occurs, BLM asserts it’s jurisdiction and establishes the spacing requirement or spacing order for Indian lands. Because different laws govern some Oklahoma Indian leases, the Oklahoma Corporation Commission sets spacing for District Court leases in Oklahoma.

How do spacing requirements lead to Communitization Agreements?

If the acreage in your lease is too small to support an independent well according to either BLM or state spacing requirements, BLM may require that the lease join other leases in what is known as a Communitization Agreement. A Communitization Agreement protects the rights of the participating mineral owners by providing for each to share fairly in the production from the well. Each participant's share is based on the amount of the mineral owner's acreage that is included in the agreement.

For example, if well spacing is 320 acres for a particular reservoir, the operator can drill only one well for each 320 acres. If your lease is 160 acres ( too small to support its own well) it must link up with other neighboring leases to total 320 acres. To protect the rights of each participating mineral owner, a Communitization Agreement is formed. This agreement allows participating leases in the agreement to share in the well’s production and royalties. Each lease shares in the production based on the amount of its acreage included in the Communitization Agreement.

If you and your neighbor each have 160-acre leases in a 320-acre Communitization Agreement, you would each have 50 percent of the total acreage and receive 50 percent of the royalties. If one month's royalties were $100, you would each receive $50, based on your leases' 50 percent interest in the agreement. However, if you share your lease with others, that $50 would be further divided according to the percentage each person has in the lease. For example, you have 40 percent interest in the lease, and three cousins each have 20 percent interest. You would receive $20, 40 percent of the $50. Your three cousins would each receive $10, 20 percent of the $50.

When leases participate in Communitization Agreements, a well is drilled in the best geological location, regardless of who owns the land. Each participant in the agreement shares fairly in the production. Since fewer wells are drilled because of the spacing requirements, the overall management of the oil and gas resources is improved.

Your lease may be combined with other Indian, federal, state or private leases to form an oil and gas Unit Agreement. Unit Agreements are commonly used in the oil and gas business to economically develop production from large underground petroleum reservoirs. Most Indian lease terms contain provisions for parties to agree to unit agreements

A Unit Agreement combines individual leases that cover one or more common underground oil and gas reservoirs to make a larger area for development. Two or more operators will form a Unit Agreement and designate a unit operator to develop the overall unit. There are two types of units: exploratory and secondary recovery.

Exploratory units are formed in areas where the potential for oil and gas is suspected but, as yet, unknown. In an exploratory unit, when a producing well is drilled, acreage around the well is designated as a participating area. Royalties from the production are shared, based on acreage among all leases within the participating area regardless of where the well is located.

A secondary recovery unit is formed later in the life of the reservoir's production, when the reservoir's natural pressure has been depleted and production has slowed to the point where it is barely enough to cover the cost of operating the wells. In a secondary recovery unit the operator introduces a fluid, usually water, into the reservoir to drive some of the remaining oil to the wells where it can be produced. In a secondary recovery unit, leases with the unit share in the royalties in a manner agreed upon when the unit is formed. While shares in an exploratory unit are based on acreage, secondary recovery units are more complicated and are generally based on other factors, in addition to surface acreage. Because of this, each secondary recovery unity has a unique schedule of distributions.

Benefits of Unit Agreements

Unit Agreements offer Indian mineral owners several benefits:

• Production and royalties are shared from any well within the unit’s participating area boundaries even if you don’t own the land the wells are on.
  

• Royalty payments are shared fairly because production from the Unit is divided according to the percentage share of each participating lease.
  

• A reservoir’s life is extended, making full use of the oil and gas trapped in a reservoir and allowing wells to produce longer.
  

• Royalty payments are extended, since the reservoir produces longer.
  

Unit agreements are commonly used in the oil and gas business to economically develop potentially large underground petroleum reservoirs, which may include Indian, federal, state, and/or private leases. A unit agreement combines individual leases covering one or more common underground oil and gas reservoirs to make a larger area for development.

An Exploratory Unit is generally formed in areas where the potential for oil and gas is suspected but precise location and amounts are unknown. Two or more operators form a Unit Agreement and designate a unit operator to develop the overall unit. These agreements benefit both operators and mineral owners by allowing one operator to explore large areas that otherwise might not be developed.

Once an operator drills a producing well within the unit that produces enough oil and gas to make a profit, a participating area is formed around that well. Generally, the geology around the well determines the size of the participating area. Each time a new producing well is drilled, the participating area is expanded to include the area around the new well. Additional participating areas are formed when new formations are drilled and developed. Units can contain many participating areas. Production and royalties are shared from any well deemed to be producing within the participating area regardless of ownership.

Benefits of Exploratory Units

• Lands are explored and developed that would otherwise not be drilled without these agreements.
  

• Production and royalties are shared from any well within the unit’s participating areas regardless of ownership.
  

• Royalty payments are shared among the leases according to their acreage in the Unit’s participating area.

Royalties and Production Are Shared Fairly

Unit Agreements provide that each lease in the agreement share fairly in the production and royalties regardless of the location of the producing well(s). The operator will drill the well(s) in the best geological location(s), regardless of who owns the land. Generally, each lease shares in the production and royalties based on the amount of its acreage included in the exploratory unit agreement’s participating area.

The Bureau of Indian Affairs (BIA) approves Unit Agreements on Indian lands. If your property is within the area covered by a proposed unit agreement, BIA will ask the Bureau of Land Management to determine if you benefit by your lease being included in a unit.

Contact your BIA area or agency office to find out if your lease is currently part of a unit. If so, you can find out about your share of the production and royalties from the unit.

A Secondary Recovery Unit is another type of Unit Agreement used to increase oil and gas production. Unit Agreements are used by the oil and gas industry to develop large underground petroleum reservoirs in an efficient and orderly manner.

Unit Agreements combine individual leases covering an underground oil and gas reservoir (or several adjoining ones) into a larger area or "unit." This allows an operator to develop the area efficiently and provides for maximum recovery of oil and gas. Unit agreements may include Indian, federal, state, and/or private leases, and enable operators to recover oil and gas that might not otherwise be recoverable from individual leases.

What is "Secondary Recovery?"

When production first starts, natural pressure in the reservoir drives the oil to one or more wells in the field where it is brought to the surface. This is known as primary recovery.

As the reservoir is produced, the natural pressure eventually decreases to the point where it can no longer push the oil to the well by itself. The operator may increase the pressure in the system, usually by injecting water or another fluid down some of the wells near the edge of the producing portion of the reservoir. The fluid drives some of the remaining oil to the other producing well(s) where it is then recovered. This is known as secondary recovery.

Benefits of Secondary Recovery

Secondary recovery units extend the life of the reservoir by allowing oil to be produced longer, increasing the total recovery of oil and gas from the reservoir. If your lease is part of a secondary recovery unit, you will generally receive royalties for a longer period of time than had your lease not been a part of a unit.

If your property is within a proposed Unit Agreement, the Bureau of Indian Affairs will have the Bureau of Land Management determine whether or not you will benefit if your lease is included in the unit.

How are Production and Royalties Shared?

Production and royalties can be shared in different ways depending on how the secondary recovery unit is formed. If it is converted from the existing exploratory unit, the production and royalties are generally shared on a surface acreage basis, the same as for the original unit.

If the secondary recovery unit is formed from individual leases that were independently developed during the primary production phase, it is more complicated and is generally based on other factors in a addition to surface acreage. The factors might include such things as:

• amount of oil left in the reservoir,
  

• past production and the age of the wells,
  

• number of usable wells per lease,
  

• well depth,
  

• amount of gas compared to oil in each well, and
  

• how much each operator has invested.

Because of the many different factors, each secondary recovery unit has a unique schedule of distributions. The Unit Agreement will spell out how production and royalties will be shared.

How Do I Know if My Lease is Part of a Secondary Recovery Unit?

You can contact your BIA area or agency office to find out if your lease is part of any Unit Agreement and, if so, your share of production and royalties.

You may need to share royalties because your lease may be part of a Communitization Agreement or a Unitization Agreement. See questions 17 and 18 for more information.

It is likely that you are receiving royalties because your lease is part of a Communitization Agreement or a Unitization Agreement. Under these agreements, it does not matter where the well is located. See Questions 17 and 18 for more information.

Although you can request direct payment of royalties and annual rents from your Bureau of Indian Affairs (BIA) area or agency office, we do not encourage this. The disadvantages are many.

• The Minerals Management Service (MMS) cannot verify that you received an actual payment from the company. MMS only receives a report from the company indicating that they made a direct payment to you.
  
  
• MMS cannot determine if your payment was made on time. As a result, MMS is not able to collect late payment interest for late payments.
  
  
• MMS cannot examine that recoupments of company overpayments are done properly.
  
  
• The Office of Trust Funds Management (OTFM) cannot invest your oil and gas payment. Therefore, you will not earn interest. Individuals whose payments are handled by the MMS, BIA and OTFM currently earn interest on their royalties until the payments are mailed to you- usually within two to four weeks.
  
  
• BIA cannot accurately track and monitor ownership changes and payment allocations when direct payees die because the companies may not inform BIA. This increases the chance that payments will be made incorrectly to remaining owners.
  
  
• BIA cannot ensure that you receive your share of the annual rent on a lease.
  
  
• Payment instructions (division orders between operators and payors), which document for owners and companies how Indian mineral royalties are allocated from a well, may not be reviewed by BIA. This can result in payment suspensions or errors in payments.
  
  
• BIA cannot provide royalty payment histories used in determining eligibility for social welfare benefits.

The only advantage gained is that you receive your payments about two to four weeks sooner. However, as mentioned above, this advantage is offset by interest earnings.

To gain a better understanding of oil and gas management on Indian lands, attend outreach sessions the Department of the Interior sponsors throughout the year. Call the Minerals Management Service (MMS) Office of Indian Royalty Assistance, at 1(800)982-3226, to determine when and where the next outreach session in your area will be held.

If you have specific questions or concerns about royalty payments or your lease, contact your local BIA area or agency office first. They will either help you with your question or refer you to the appropriate MMS office.