Tuesday I attended a luncheon hosted by ALTA (Association of Lease and Title Analysts). James R. Nicas, an attorney with Steptoe and Johnson gave a presentation on apportionment.
Lease royalties can be determined in two ways: apportionment and non-apportionment. The vast majority of states use non-apportionment which means royalty interest is calculated on a tract basis unless the lease specifies otherwise. The apportionment method requires that the royalty interest be calculated on a lease basis. Only three states specify apportionment be used when royalty determination is not explicitly stated in the lease. However, these three states, California, Mississippi and Pennsylvania are all oil and gas producers, and with the Marcellus shale boom, this has become an important issue. Further, as the oldest oil producing state, Pennsylvania has some very old leases in place. In fact some leases there have been in force for 120 years. Quite often, this can be a real problem as owners do not realize that acreage has already been leased without their knowing it.
This is a very complex, but relevant topic for those who own mineral interests in apportionment states. For a thorough discussion of the subject, complete with examples, please go to March Speaker Presentation – Apportionment.pptx .