Mineral Owners May be Losing Money
The oil and gas boom has made many Texans rich since 2008, but some mineral owners may not be getting what they deserve. A four year statute of limitations to correct payments errors has many owners scrambling to make sure they are being treated fairly.
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Texas has a provision that allows mineral owners to request an audit if they have a dispute with an operators, which might involve royalty payment discrepancies, lease issues, drilling provisions or surface obligations. During an audit, production information, check stubs and other data is scrutinized to make sure operators have held up to their commitments in the lease.
If an owner suspects a problem, they have a four year time limit (from the time of infraction) to request an audit. This may seem like plenty of time, but it is not always clear what operators are doing and sometimes a problem isn’t obvious until it is too late.
Texas case law has laid a heavy burden on mineral owners to make sure energy companies pay what is owed. In 2012, the Texas Supreme Court issued a decision in Shell v Ross that requires owners to do their own exhaustive audits to find out if payments are correct.
“Readily accessible and publicly available information could have led the Rosses to discover that Shell was underpaying royalty before the limitations period expired,” the Texas Supreme Court ruled. “We hold that evidence conclusively established that Shell’s alleged fraud could have been discovered by the Rosses through the exercise of reasonable diligence.”
This increased responsibility for mineral owners can be overwhelming and, in some cases, impossible if they don't have access to the proper information. Owners must be extra vigilant about all parts of the process, especially making sure they have a good lease that gives them the authority to inspect an operator’s books, accounts, reports or other accounting records.
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