SUMMARY OF COLORADO LEGISLATIVE PROPOSALS ROYALTY TASK FORCE BEFORE DEPT OF AGRICULTURE COMMISSIONER AMENT

• Jurisdiction: United States

PRIVATE OIL & GAS ROYALTIES
(Sept 2003)
CHAPTER 13B
SUMMARY OF COLORADO LEGISLATIVE PROPOSALS ROYALTY TASK FORCE BEFORE DEPT OF AGRICULTURE COMMISSIONER AMENT
By Rachel A. Yates
Holland & Hart
Denver, Colorado

Following the death of Colorado Senate Bill 141 ("SB-141"), several interested groups formed a voluntary task force, chaired by Colorado Department of Agriculture Commissioner Don Ament, to consider legislative solutions to the issues posed by SB 141. After several months of general exchanges of information, two proposals were presented for the task force's consideration.

The first proposal was submitted by Dante Zarlengo, the Colorado Bar Association representative on the Task Force. The second was submitted by Janice Bennett-Good, a representative of the National Association of Royalty Owners ("NARO") for the Rockies region. Both proposals addressed issues broader than the issues raised by SB-141 and Rogers v. Westerman Farm Co., 29 P.3d 887 (Colo. 2001). They contained notable royalty definition and payment provisions, royalty reporting requirements, and enforcement mechanisms.

After some discussion, the Royalty Task Force decided not to proceed with further discussion of these proposals, citing the inability to reach consensus within the time allowed for a bill to be presented to the Colorado General Assembly in the 2003 legislative session. The group disbanded, subject to recall at the pleasure of Commissioner Ament. All groups agreed that they would not seek to introduce a bill independently on these topics during the 2003 legislative session.

Royalty Definition and Payment

The NARO proposal adopted a Wyoming model¹ for payment of royalties. In lieu of "costs of production," it defined "Cost of Development, Operation, Marketing, Production and Conditioning" to include costs to prepare and move the production "to a market pipeline where it is sold in the commercial market." These Costs could not be deducted from or charged against the royalty share in determining value. Transporting oil from the storage tank to market; transmitting gas in a market pipeline; and processing gas for extraction of liquids could be deductible, but only to the extent the royalty share after such operation was greater than the royalty share that could otherwise have been obtained in an arms-length sale. The proposed statute provided explicitly that "at the well" and "at the mouth of the well" royalty language did not authorize the deduction of...