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b. Minimum Annual Royalties
On December 29, 1979, Stonehurst entered into a sublease
agreement with Craig for a 100-percent working interest in oil,
gas, and mineral rights to 340 acres in Nowata County, Oklahoma.
The working interest was restricted to the “Bartlesville Sands
formation, the principal producing zone in the area” and “no
other oil, gas or mineral rights in the subject property”. R.H.
Energy, Ltd. (“R.H. Energy”), the driller/operator under the
turnkey contract, see infra p. 8, concurrently was to assign its
mineral rights in this land to Craig.
Stonehurst, as sublessee, agreed to pay Craig, as sublessor,
a production royalty of 67 percent of gross revenue from the sale
of oil and gas. Stonehurst was obligated to pay a lease bonus of
$10,000, and minimum annual royalties of $2,278,000 for 1979, and
$2,006,000 for each year thereafter through 1994, for a total of
$30,362,000, accruing on December 29 of each year, to be recouped
from the production royalty prior to any expenses’ being paid by
Stonehurst. In the absence of production, payment of all
royalties was deferred until December 29, 1994. All minimum
annual royalties accrued but unpaid on that date were then to be
paid in cash by Stonehurst to Craig. Minimum annual royalties
accruing thereafter were to be paid within 1 year of accrual.
Both the general and limited partners of Stonehurst were relieved
of any liability associated with the accrued but unpaid royalties
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Last modified: May 25, 2011