Oil & Gas

Royalty owners in Texas have specific rights related to the mineral interests they own that are produced by an operator. Likewise, operators have specific requirements to meet regarding disclosure, payments, remediation, and other things.

The regulating authority of minerals in Texas is the Railroad Commission of Texas. Don't let the name fool you, they don't have anything to do with railroads, that's the Texas Department of Transportation. The Railroad Commission of Texas is a state agency with primary regulatory jurisdiction over the oil and natural gas industry, pipeline transporters, natural gas and hazardous liquid pipeline industry, natural gas utilities, the LP-gas industry, and coal and uranium surface mining operations. (Learn more at https://www.rrc.state.tx.us/about-us/.)

Courses of action when an operator fails to meet its requirements differ for royalty owners but may include the removal of the operator from the lease, claims against the operator for damaging the well, claims against the operator for unpaid or underpaid royalties (which may also include interest), and other claims. The document that generally governs the interaction between a royalty owner and the operator is a Lease Agreement, but there may also be addendums, pooling, or unitization agreements that can complicate an already complex dispute.

In general, working interest owners have an obligation to pay expenses associated with drilling and operating a well - they are either operators or non-operators. The agreement that governs the interaction between operators and non-operators is typically the Joint Operating Agreement (JOA), which references one or multiple lease agreements. The JOA has provisions and remedies in it to protect both groups and generally contains an audit clause as well as an accounting procedures attachment. More recent JOAs may be subject to interpretation from COPAS (https://www.copas.org/) and may also be subject to contract interpretations.

Generally, a non-operating working interest owner requests documents from the operator or an audit of the operator's joint operating account to ensure the operator is operating under the terms of the agreement. Failures in audit responses or to provide documents may result in litigation against the operator. Similarly, failures to respond to a request for payment by the operator may result in litigation against the non-operating working interest owner.

Royalty owners, non-operating working interest owners, and operators are mixes of individuals and businesses. As such, disputes between them may fall under various sections of the business code, contract interpretations, and different duties to each other (fiduciary and otherwise). Some disputes may tend towards criminal statutes such as elder fraud.

If fraud is suspected, there may be civil and criminal causes of action. Financial crimes straddle the civil and criminal codes. A financial expert who understands the burdens of proof, statutory damage clauses, and acceptable methods for calculating damages is critical in complex commercial disputes.