Reflecting on my recent attendance at the 10th Annual Oil and Gas Disputes seminar in Houston, I realized there's a wealth of information to share beyond what I covered in my previous blog post, where I touched upon a case law update, the emerging issue of produced water rights, and a pivotal case recently adjudicated by the Texas Supreme Court.
Today, I aim to delve deeper into two additional lectures that shed light on operators' rights in the event of royalty overpayment and their obligations regarding the continuous development of mineral estates.
- Self-Help for Overpayment of Royalties
The presenter discussed methods operators use when they find they have overpaid a royalty owner. Overpayment is a common problem operators face, and it is a problem for mineral owners, too, because they are not entitled to keep money mistakenly paid. In Texas, a cause of action called “Money Had and Received” forms the basis of the self-help remedies available to operators. Money Had and Received is a no-fault cause of action, meaning the plaintiff is not required to show wrongdoing by the defendant to win the relief sought. The cause of action for Money Had and Received is:
- The defendant has money
- The money rightfully belongs to the plaintiff
The lecturer explained this legal rationale as a basis for operators' entitlement to withhold future payments to balance the accounts of overpaid mineral owners; he discussed the practical reasons why an operator may choose self-help over other available options, and he discussed the legal pitfalls that operators and mineral owners may find themselves in when self-help is invoked.
As mineral managers, it is important to understand the different self-help remedies available to operators and to ensure that when self-help is invoked, the operator does so properly.
Overpayment of royalties, underpayment of expenses, and how operators balance their books are common issues the Oil and Gas Management team handles for clients. It is important to note that, when done correctly, self-help is a legitimate way for operators to balance their books. This lecture was informative in teaching the proper way for operators to exercise self-help and the remedies when improperly executed. - Navigating the Continuously Developing Law of Continuous Development Clauses
This session discussed the continuous development clause in an oil and gas lease. A continuous development clause is a mineral owner-friendly term in a lease that obligates operators to drill as many wells as the land will support or face termination of the lease. This clause will typically mandate a new well to be drilled within a specified number of days. However, it is incumbent upon owners to monitor the operator’s drilling program and demand that operators meet their lease obligations or face litigation to terminate the lease. The presenter covered relevant case law and provided practical examples that illustrated the operators’ obligations and the mineral owners’ responsibilities.
The Oil and Gas Management team routinely vets and hires lawyers on behalf of our clients who will prosecute rights under the continuous development clause of a lease. We work with our clients to identify which lands may be ripe for a challenge under the said clause and act as a liaison between to the attorney.
The lessons learned at the Oil and Gas Disputes seminar are already being implemented in the daily work of SS&C Innovest's unique assets division. Vigilantly overseeing operators' activities is central to our mandate, empowering trustees to make informed decisions regarding their clients' assets. As we navigate the dynamic landscape of oil and gas law, staying abreast of legal developments remains paramount, ensuring our clients receive the guidance and support they need in a rapidly evolving industry.
SS&C Innovest provides customized outsourcing solutions and Managed Services. Scores of organizations across the country, from individuals, family offices, and community banks to national organizations, empower SS&C Innovest to manage these services directly or on behalf of their clients. To learn more about how SS&C Innovest can support your needs, call (800) 727-0605 or email info@sscinc.com.
