MISSISSIPPI LEGISLATURE

1999 Regular Session

To: Oil, Gas and Other Minerals; Finance

By: Senator(s) Hall

AN ACT TO AMEND SECTION 53-3-39, MISSISSIPPI CODE OF 1972, TO REVISE THE CONDITIONS UNDER WHICH STATUTORY INTEREST IS DUE ON PROCEEDS OF PRODUCTION NOT DISBURSED TO A ROYALTY OWNER; AND FOR RELATED PURPOSES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:

SECTION 1. Section 53-3-39, Mississippi Code of 1972, is amended as follows:

53-3-39. Purchasers of oil or gas production from any oil or gas well shall be liable for the payment of interest on royalty proceeds which have not been disbursed to the royalty owners from and after thirty (30) days following the date of the first sale of oil or gas.

The rate of interest shall be eight percent (8%) per annum and shall be computed from the date of thirty (30) days after such first sale; however, from and after July 1, 1992, the rate of interest shall be the greater of eight percent (8%) per annum or two percent (2%) above the federal discount rate in effect as of the second day of January of each year during which interest on such royalty proceeds is payable, except in those instances where the royalty proceeds cannot be paid because the title thereto is not marketable, in which case the rate of interest on a per annum basis shall be equal to the federal reserve discount rate in effect as of the second day of January of each year during which interest on the royalty proceeds is payable. The accrued interest shall be paid to the royalty owners at the time of the payment of the accrued royalty proceeds, such rate of interest to be displayed on the disbursement document. As used herein, "first sale" shall mean the first commercial sale of production after completion of the well and shall not include sales of oil or gas during initial testing prior to completion of the well.

Whenever the disbursal of royalty proceeds is suspended for any reason whatsoever, the purchasers of production shall be liable for the payment of interest on the royalty proceeds which have been suspended. Except as otherwise provided, the rate of interest shall be eight percent (8%) per annum and shall be computed from the date that the royalty payments were halted or suspended; provided, however, that if such date is less than thirty (30) days after the first sale of oil or gas, then such interest shall be computed from the date of thirty (30) days after such first sale. From and after July 1, 1992, the rate of interest shall be the greater of eight percent (8%) per annum or two percent (2%) above the federal discount rate in effect as of the second day of January of each year during which interest on such royalty proceeds is payable, except in those instances where the royalty proceeds are suspended because the title thereto is not marketable, in which case the rate of interest on a per annum basis shall be equal to the federal reserve discount rate in effect as of the second day of January of each year during which interest on such proceeds is payable. The accrued interest shall be paid to the royalty owners at the time of the payment of the suspended royalty proceeds, such rate of interest to be displayed on the disbursement document.

The purchaser of production from a well shall be exempt from the provisions of this section and the operator and/or the owner of the right to drill and to produce under an oil and/or gas lease shall be substituted for the purchaser herein where the operator and/or the owner and purchaser have entered into an arrangement where the royalty proceeds are paid by the purchaser to the operator and/or the owner who assumes responsibility of paying the proceeds to the royalty owners legally entitled thereto. Where the operator and/or the owner of the drilling rights are substituted herein for the purchaser, the interest provided for hereinabove shall accrue from the date set forth hereinabove or from the date of such operator and/or owner's receipt of the proceeds of such production, whichever is the later date.

Provided further, that as to royalty payments regularly disbursed in the normal course of business, nothing in this section shall be construed to require the payment of interest on royalty payments disbursed to the royalty owners no later than sixty (60) days after the end of the calendar month within which such royalty production was sold. Provided further, that whenever the aggregate of one hundred twenty (120) days' accumulation of monthly proceeds payable to any royalty owner does not exceed One Hundred Dollars ($100.00), no interest shall accrue or be payable thereon, provided that the disbursement of such accumulated proceeds be made to the royalty owner no later than once each one-hundred-twenty-day period.

For the purposes of this section, marketability of title shall be determined in accordance with real property law governing title to oil and gas interests as recognized at the time the royalty payments were suspended or not paid.

The provisions of this section which require payment of interest on royalty proceeds which have not been disbursed may not be waived or reduced by a royalty owner entitled to such interest payment unless said royalty owner shall attest to a statement which shall be typed in bold print on a separate form and attached to the relevant division order contract as to the royalty owner's interest. Such statement shall be set out as follows:

I, (royalty owner's name) hereby agree to waive the statutory right given me to receive interest on royalty proceeds as provided by Section 53-3-39, Mississippi Code of 1972, from (purchaser or operator and/or owner of right to drill), which is due me as evidenced from the attached division order contract. This is the _____ day of __________, 19___.

__________

(royalty owner's signature)

The words "owner," "oil," "gas" and "royalty owner" used in this section shall have the meanings attributed to them in Section 53-1-3, Mississippi Code of 1972.

SECTION 2. This act shall take effect and be in force from and after July 1, 1999.