Austin, TX (Law Firm Newswire) April 2, 2012 – “A recent Texas Supreme Court oil and gas case shows the importance of quickly looking into suspect royalty payments if an owner feels he or she is being underpaid. In Shell Oil v. Ralph Ross a royalty owner learned the hard way about not taking action on royalty payments within the statute of limitations. The Rosses were owed a one-sixteenth royalty along with the State of Texas as part of a pooling and unitization agreement with Shell. The Court found that even though Shell had underpaid Ross, Ross could not collect the underpaid funds because Ross did not exercise due diligence within the four-year statute of limitations period.
“This ruling shows how important it is for royalty owners to act on concerns about shortchanged royalty payments or missing ones,” said Austin oil and gas attorney Gregory D. Jordan. “If you think you’re seeing something questionable occurring in the accounting when you receive a royalty payment, do something about it. If you cannot get a satisfactory answer to your questions from the oil company, your best bet may be to contact a knowledgeable Texas oil and gas lawyer,” advised Jordan.
In Ross, the Texas Supreme Court noted that public information records showed the state was being adequately paid whereas the Rosses were not. The Court stated that the Rosses could have researched prices in the El Paso Permian Basin Index or the Texas General Land Office. The Court also suggested the Rosses could have asked companies who bought the gas from Shell what they paid or gone to Shell directly to inquire about prices.
The Texas Supreme Court found that Shell paid the Rosses an arbitrary price for the production from the lease wells and a weighted average for the unit wells. All of this did not matter, however, because the Court said the Rosses did not bring their claim within the legal time limit to do so.
“It is easy to become preoccupied with other matters and try to justify why you did not make or investigate a claim of unpaid royalties in a timely manner,” said Jordan. “But don’t shortchange yourself or get convinced by a company rep or land man to not pursue your instincts about not being fully paid. It is better to know than forfeit your rights.”
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