Mineral Owners Race the Clock in Texas

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.

Read more about mineral rights in Texas

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.

Connect with other mineral owners at MineralRightsForum.com

JPMorgan Settles Eagle Ford Shale Case

McMullen County Eagle Ford Shale Map

JPMorgan Chase & Co. has settled a lawsuit by a group of Texas mineral rights owners in the Eagle Ford Shale, Bloomberg reports. 

The lawsuit alleged JP Morgan, as trustee of the South Texas Syndicate (STS) Trust, cheated beneficiaries out of millions of dollars through its' mis-management of the trust's oil & gas interests. The STS Trust's beneficiaries own the mineral rights to 132,000 acres in LaSalle and McMullen counties in the heart of the Eagle Ford Shale's oil window.

Beneficiaries claim JP Morgan entered "sweetheart deals" with its commercial clients, Petrohawk Energy Corp. and Hunt Oil Co., that cheated them out of more than $600-million in compensation. JPMorgan denied those claims as speculation.

On Nov. 14, a settlement was reached and the jury that had been called to hear testimony in the case was dismissed. The terms of the settlement were not revealed by either party.

At the heart of the lawsuit, beneficiaries claimed JPMorgan took leases for large chunks of acreage at low lease rates to gain favor with its oil company clients, but leases were taken before the Eagle Ford boom really took off. It's hard to imagine it now, but the Eagle Ford was a wildcat area in 2008, and largely off the radar.

Petrohawk, which sold to BHP-Billiton for $12-billion in 2011, and a major lessee in the STS acreage, took a calculated risk in South Texas, and it paid off big. But for all most folks knew in 2008, if they had even heard about the Eagle Ford Shale, is it could have been a bust. Of course, that turned out not to be the case.

For further review, the case is Meyer v. JP Morgan Chase Bank, 2018-CI-10977, District Court, Bexar County, Texas (San Antonio).

Lawsuits Over Mineral Rights on the Rise

Lawsuits over the nature of mineral leasing and the high stakes game of who owns and who leased first is a multi-million dollar issue in South Texas. Everyone sells land and leases minerals happily until acreage prices skyrocket. That's when the lawyers come out. That's when people realize they might have missed something very big. The gravy train of $10,000+ per acre lease bonuses and long lived royalties might have passed right by. Often times, real estate trades for fractions of the dollar before oil or gas is discovered. In a 1-2 year time period in Northern Louisiana, acreage prices in the Haynesville Shale increased from less than $3,000 an acre (that was good) to sell land and mineral rights to simply leasing minerals for as much as $20,000 per acre. Prices have come down, but the boom is much like what we'experiencing in the Eagle Ford.

The dollars involved also increase the likelihood of fraud. There will no doubt be bad apples, but companies do their due diligence on title and many of these issues are resolved before leasing. If you are leasing, always do research to make sure you're working with a reputable party.

A tangle of lawsuits has been filed over the disputed ownership of valuable mineral-rights leases in the booming Eagle Ford Shale in South Texas, including allegations that the Fort Worth office of JPMorgan Chase & Co. wrongfully leased lands in Karnes and DeWitt counties.

In the DeWitt case, Orca Assets of Corpus Christi says it paid $3.2 million for a lease that the bank, acting for Fort Worth-based Red Crest Trust, had already sold to a rival drilling company.

Orca is on the other side of litigation in Karnes County, where it is a co-defendant with Chase and the trust.

Not too long ago, very few would care about those assets. But hydraulic fracturing technology has made Eagle Ford a hot drilling area. The San Antonio Express-News reported that mineral leases that fetched just a couple of hundred dollars less than a decade ago are now commanding $10,000 and more.