Ark. Code Ann. » Title 15 Chapter 74
Arkansas Code Annotated

Ark. Code Ann. § 15-74-603 (2020)

Action for nonpayment of proceeds

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  1. Any court of competent jurisdiction of the county in which the oil or gas well is located shall have jurisdiction over all proceedings brought pursuant to this subchapter.
  2. If persons legally entitled to the proceeds seek relief for the failure of the purchaser to make timely payment of proceeds from the sale of oil or gas or interest thereon as required in §§ 15-74-601 and 15-74-602, the first purchaser or the owner of the right to produce under an oil or gas lease or force pooling order shall be furnished with written notice of the failure as a prerequisite to commencing judicial action for the nonpayment.
  3. The first purchaser shall have thirty (30) days after receipt of the required notice within which to pay proceeds or to respond in writing with a reasonable basis for nonpayment.
  4. If the court is satisfied that payments have not been willfully withheld without just cause or through bad faith, the penalty provisions of § 15-74-602 shall not apply to the withholding of the payments.
  5. In the event of willful nonpayment, or in the event the court finds there was a complete absence of a justiciable issue of either law or fact raised by the losing party or his or her attorney, the court shall award an attorney's fee in an amount not to exceed five thousand dollars ($5,000) or ten percent (10%) of the amount in controversy, whichever is less, to the prevailing party unless a voluntary dismissal is filed, or the pleadings are amended as to any nonjusticiable issue within a reasonable time after the attorney or party filing the dismissal or the amended pleadings knew, or reasonably should have known, that he or she would not prevail.
  6. The terms of this section shall not be applicable to any producing unit or well that produces liquid hydrocarbons only, or liquid hydrocarbons associated with the production of gas, or gas produced associated with the production of liquid hydrocarbons.

History. Acts 1981, No. 269, § 1; 1983, No. 448, § 1; A.S.A. 1947, § 53-525; Acts 1987, No. 94, §§ 3, 4.

Case Notes

Penalty.

Where company made timely payments on leases for oil, gas, and brine, but mistakenly made the payments to the wrong person, trial court correctly refused to award penalty and attorney's fee to the prevailing party legally entitled to the payments. Atlanta Exploration, Inc. v. Ethyl Corp., 301 Ark. 331, 784 S.W.2d 150 (1990).

In an action for breach of an oil and gas lease, plaintiff lessor was not entitled to the penalty provided by § 15-74-602 because, assuming that the lessor had furnished the lessee with the requisite notice, the lessor still failed to plead any facts that would support a finding that the lessee willfully withheld payments without just cause or in bad faith. Walls v. Petrohawk Props., LP, 812 F.3d 621 (8th Cir. 2015).

Prejudgment Interest.

Where company made timely payments on leases for oil, gas, and brine, but mistakenly made payments to the wrong person, party legally entitled to the payments was entitled to prejudgment interest in an action to collect past royalties. Atlanta Exploration, Inc. v. Ethyl Corp., 301 Ark. 331, 784 S.W.2d 150 (1990).

Notes of Decisions
Cited in 3 cases, 1990–2015 · leading case: Atlanta Expl., Inc. v. Ethyl Corp., 784 S.W.2d 150 (Ark. 1990).
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Atlanta Expl., Inc. v. Ethyl Corp., 784 S.W.2d 150 (Ark. 1990). · cites it 4× “Section 15-74-601 (e), in relevant part, provides that if payment is not made within these time limits, the first purchaser (here Ethyl) is required to pay interest to those legally entitled to the withheld proceeds at the rate of 12% per annum on the non-paid amounts.”
Dorchester Minerals, LP v. Chesapeake Expl., LLC, 215 F. Supp. 3d 756 (E.D. Ark. 2015). “Chesapeake argues that Dorchester did not make a proper notice or demand under Arkansas Code Annotated § 15-74-603(b) and that “[t]here is no alleged proof of willful withholding of payment of royalties without just cause or through bad faith.”
Verkamp v. Floyd E. Sagely Props., Ltd., 238 S.W.3d 619 (Ark. Ct. App. 2006). · cites it 2× “In September 2002, Verkamp filed suit pursuant to Ark. Code Ann. §§ 15-74-603 , -604 (Repl.”
Ark. Code Ann. § 15-74-603(b): 1 case
Dorchester Minerals, LP v. Chesapeake Expl., LLC, 215 F. Supp. 3d 756 (E.D. Ark. 2015). “Chesapeake argues that Dorchester did not make a proper notice or demand under Arkansas Code Annotated § 15-74-603(b) and that “[t]here is no alleged proof of willful withholding of payment of royalties without just cause or through bad faith.”
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