This form is used when, as a result of continuous production from the Lease and Lands, payout, as defined in an Assignment, has occurred, and Declarant is entitled to elect to convert the Override to a Working Interest, as provided for in the Assignment.
Title: Kentucky Declaration of Election to Convert Overriding Royalty Interest to Working Interest: Explained Introduction: In Kentucky, the Declaration of Election to Convert Overriding Royalty Interest to Working Interest is an important legal document that allows individuals or entities holding overriding royalty interest (ORRIS) in oil or gas leases to convert it into a working interest (WI). This conversion grants the interest holder greater participation in the exploration, production, and investment decision-making processes. In this article, we will explore the various types of Kentucky Declarations of Election to Convert Overriding Royalty Interest to Working Interest and shed light on their significance. 1. Types of Kentucky Declarations of Election to Convert Overriding Royalty Interest to Working Interest: a) Individual Conversion: Under this type, an individual holding an overriding royalty interest can make the declaration to convert it into a working interest. This allows the interest holder to actively participate in the drilling, development, or operations of the lease project. b) Entity Conversion: For entities such as partnerships, corporations, or limited liability companies, the declaration is filed to convert the overriding royalty interest held by the organization into a working interest. This allows the entity to exercise control over the decision-making process and opens avenues for potential profits based on the lease's success. 2. Procedure for filing the Kentucky Declaration of Election: a) Intent Filing: The interest holder or their legal representative submits the declaration intent to convert overriding royalty interest to the Kentucky Department of Revenue, Division of Oil and Gas. This filing must include required information such as the legal description of the property, lease details, and contact information. b) Affidavit of Conversion: Once the intent is filed and accepted, the interest holder prepares and submits an affidavit outlining the details of the conversion. The affidavit must include the executed working interest operating agreement, among other necessary documentation, to confirm the conversion's legitimacy. c) Approval and Recording: After careful review and verification, the Kentucky Department of Revenue, Division of Oil and Gas approves the declaration and records it in the official records. This step validates the conversion and ensures transparency in the ownership transfer of the interest. 3. Key Significance and Benefits of Conversion: a) Increased Control: By converting an overriding royalty interest to a working interest, the interest holder gains decision-making power and control over operations, allowing direct involvement in lease activities. b) Potential for Greater Profits: As a working interest owner, one is entitled to a share of the lease's production revenues, thereby increasing the profit potential compared to receiving a fixed ORRIS. c) Deductions and Tax Benefits: Working interest owners can deduct their share of operating expenses, depletion, and lease-related costs from their taxable income, potentially reducing their tax liability. d) Investment Flexibility: WI owners have the freedom to option, sell, or transfer their interest to other parties, providing investment flexibility and opportunities for diversification. Conclusion: The Kentucky Declaration of Election to Convert Overriding Royalty Interest to Working Interest allows interest holders to convert their ORRIS into a working interest, granting them greater control, potential profits, tax benefits, and investment flexibility. By understanding the different types and the process involved in filing the declaration, individuals and entities can make informed decisions while actively participating in oil and gas lease projects in Kentucky.
