August 2013

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Underpayment of royalties continues to represent a hot topic in oil and gas litigation.  Property owners who enter into royalty agreements dream of enjoying riches at the hands of companies with the resources to explore for, produce and market minerals.  By nature, a royalty owner’s rights are passive.  The royalty owner generally has an interest in a stipulated fraction of production free of production costs, if and when production occurs, and has no obligation or right to participate in the operations related to exploration, production or marketing.  The royalty owner merely waits for the check to come in the mail.  Difficulties inevitably arise when a royalty owner receives a check that appears inadequate, either by comparison to previous checks from the same company or to checks from another company or to checks he sees his neighbor receiving.  Royalty payments may slow even as the production of minerals appears to increase. The instinctive reaction:  assume manipulation by the oil and gas company. Landowner disappointment, however, often flows from a failure to read or understand basic mineral lease terms. Royalty owners, believing that oil companies use various tactics to cheat them of their due, increasingly are turning to the courts. (more…)

In PanAmerican Operating, Inc. v. Maud Smith Estate, the Texas Court of Appeals for the Eight District addressed risks associated with working through independent landmen. In this case, PanAmerican hired an independent contractor, Robert Wormser, a landman, to obtain an oil and gas lease. Mr. Wormser called the attorney for Maud Smith Estate and, without disclosing that he was an independent contractor, began negotiating the lease. After executing and mailing the lease to PanAmerican and attempting for seven months to get paid, Maud Smith Estate sued for breach of contract. In its answer, PanAmerican claimed the lease was invalid. PanAmerican denied that Mr. Wormser was an employee and argued that Mr. Wormser did not have the apparent authority to bind PanAmerican. The trial court and the Court of Appeals disagreed. (more…)

Governors Phil Bryant and Robert Bentley recently announced in remarks before the Southern States Energy Board that they had signed a memorandum of understanding, jointly commissioning a comprehensive study of Mississippi and Alabama’s oil sands reserves.  The project, which will include comprehensive geological, engineering, and legal analysis will be a joint effort between the Geological Survey of Alabama/State Oil and Gas Board, the Mississippi State Oil and Gas Board, the Mississippi Development Authority, the Mississippi Office of Geology and the Southern States Energy Board and is hoped to lead to the commercial development of the area. (more…)