Question

1. Marilyn Stone owns the mineral rights to 640 acres in Coleman County, Texas.  Marilyn leases the property to Sunrise Oil & Gas (“Sunrise”) reserving a 1/5 royalty interest.  Sunrise drills a successful well and begins producing oil.  Before the first month’s production Sunrise assigns a 5% ORRI to its engineer, Tom Jacobs.  In January 2019 Sunrise incurred $45,000 of lease operating expenses, produced and sold 10,000 BBLs of oil at a price per BBL of $52; the severance tax is 5%. Sunrise assumes the responsibility of distributing revenue and paying severance taxes.

REQUIRED (you must show your work):

1. What is the gross revenue to each party?
2. What portion of the tax does each party pay?
3. Record the sale for the working interest owner, royalty interest owner, and ORI owner.

Answer 1