Payment of Royalty  (page 17, A landowner's guide to oil and gas in Alabama)

Under Alabama law, the landowner must be paid within six months of the date that the well starts to produce. If the landowner is not paid within six months, the oil company must pay royalty payments plus interest at the rate of 12 percent annually. After the well has started to produce, the oil company has 60 days after the end of the calendar month in which production is sold to pay the landowner, or the landowner is entitled to receive the royalty plus interest at the rate of 12 percent annually. For example, if a well produces during April, the landowner would be entitled to his royalties no later than June 30. In the event that the proceeds from the royalties do not exceed $60.00 in six months, then the landowner is entitled to payments semiannually.

If the title to the mineral rights is disputed and the title is not marketable, the oil company may escrow royalties while the title is cleared. When the disputed title is resolved, the oil company must pay to the parties ultimately determined to be the proper owners the proceeds from the oil and gas production, plus interest at the Federal Reserve Discount Rate.

Alabama law requires that whenever payment is made for oil and gas production, the landowner must be provided with certain information, including the name of the well from which the oil and gas is produced, the amount of oil and gas produced, and the price of the oil and gas (Ala. Code Section 9-17-33 (1991)). The oil company will normally provide the information on a check stub attached to the royalty check.


(reprinted with permission of the Alabama State Oil & Gas Board)