This lease rider form may be used when you are involved in a lease transaction, and have made the decision to utilize the form of Oil and Gas Lease presented to you by the Lessee, and you want to include additional provisions to that Lease form to address specific concerns you may have, or place limitations on the rights granted the Lessee in the standard lease form.
Kentucky Shut-In Oil Royalty refers to the compensation paid to individuals or entities who hold the rights to oil or gas reserves in the state of Kentucky, but are unable to produce or extract the resources due to various reasons, such as economic viability, lack of infrastructure, or regulatory restrictions. Shut-in royalty is typically a percentage of the value of oil or gas reserves that are held idle, ensuring that the right holders are still compensated for their assets despite the lack of production. Kentucky, being a region with substantial oil and gas potential, offers shut-in royalty options to encourage exploration and development of hydrocarbon resources. The state provides various types of shut-in oil royalties to cater to different scenarios and arrangements. These may include: 1. Traditional Shut-In Royalty: This is the most common type of shut-in oil royalty, applicable when the production of oil or gas is temporarily halted for reasons beyond the rights' holder's control. It compensates the owners based on the agreed-upon percentage of the estimated value of reserves that remain unused. 2. Economic Shut-In Royalty: Economic shut-in royalty is pertinent when the cost of production outweighs the potential revenue from the sale of oil or gas. This scenario often arises when oil prices drop significantly, making it uneconomical to continue production. In such cases, the rights holders are entitled to a reduced royalty percentage to mitigate financial losses. 3. Regulatory Shut-In Royalty: This type of shut-in royalty comes into play when legal or regulatory restrictions prevent oil or gas extraction. These restrictions could be imposed by local or federal authorities due to environmental concerns, land use regulations, or permitting issues. Regulatory shut-in royalty compensates the rights holders based on the market value of the reserves that are rendered extractable due to government directives. 4. Infrastructure Shut-In Royalty: In some instances, the absence or inadequacy of infrastructure, such as pipelines, storage facilities, or refining capacities, may render oil or gas production unviable. Infrastructure shut-in royalty is granted to right holders to cover the opportunity cost of not being able to transport or store the extracted hydrocarbons due to infrastructure limitations. Kentucky shut-in oil royalty serves as a mechanism to protect the interests of oil and gas rights holders while providing them with a financial incentive to retain their assets until conditions are favorable for production. This approach promotes responsible and sustainable development of Kentucky's oil and gas resources, ensuring long-term benefits for both rights holders and the state's economy.
