An o&g company filed a lawsuit last month In the Southern District Court of Texas–Houston division as an interpleader, and is withholding royalties from the defendants in the lawsuit, AND also the royalties of other mineral owners in the specified oil well who are not defendants. I can understand how the company can withhold from the defendants until an ownership issue is resolved. but how can they withhold payments from those owners not involved in the lawsuit?
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Assuming they are not defendants in the suit, and there are no grounds to suspend their royalty payments, then no, they should not be suspending payments. Read your lease terms though, and see if they have broad latitude to suspend. You might consider hiring an attorney and sending a demand letter claiming breach of lease.
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An interpleader is a legal procedure where a party who is holding money or property belonging to two or more people who have a dispute over who owns it, asks the court to decide who should get the money or property.
In the case of the oil and gas company, they are holding the royalties from the oil well, and there is a dispute over who owns the mineral rights to the oil well. The company has filed an interpleader lawsuit to ask the court to decide who owns the mineral rights.
The company can withhold the royalties from all of the mineral owners, including those who are not defendants in the lawsuit, because they are not sure who actually owns the mineral rights. If the court eventually decides that the defendants own the mineral rights, then the company will have to pay them the royalties. If the court decides that the other mineral owners own the mineral rights, then the company will have to pay them the royalties.
The company is taking this precaution to avoid getting sued by the wrong people. If they were to pay the royalties to one group of mineral owners, and then the court later decided that another group of mineral owners actually owned the mineral rights, then the first group of mineral owners could sue the company for the royalties.
The company is also taking this precaution to protect itself from liability. If the company were to pay the royalties to one group of mineral owners, and then something happened to the oil well, the company could be held liable to the other group of mineral owners if they could prove that the company should have known that they actually owned the mineral rights.
It is important to note that the company can only withhold the royalties for a limited time. The court will eventually have to decide who owns the mineral rights, and the company will have to pay the royalties to the rightful owners.
Here are some of the factors that the court will consider when deciding who owns the mineral rights:
- The title documents for the property
- The chain of title for the mineral rights
- The intent of the parties who created the title documents
- The relevant state laws
The court will also consider the equities of the case, which means that it will consider who would be more harmed if the royalties are not paid to them.
The process of resolving an interpleader can take several months or even years. In the meantime, the oil and gas company is obligated to hold the royalties in trust and to keep them separate from its own funds.
If you are a mineral owner who is affected by an interpleader lawsuit, it is important to speak to an attorney to understand your rights and options.
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The attorney was his argument, as would pay, courts stating payments would be with held…
For these reasons, we hold that Ovintiv established as a matter of law that it was entitled to withhold distribution of production payments without interest under the statutory safe-harbor provisions in section 91.402(b)(1)(A) and (b)(1)(B)(ii) of the Texas Natural Resources Code. We therefore reverse the court of appeals’ judgment and reinstate the trial court’s final judgment for Petitioners.
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I understand. The code section you mentioned, Texas Natural Resources Code Section 91.402, states that a payor must remit payment of accumulated proceeds to the payee annually if the payor owes the payee less than $10. However, there are two statutory safe-harbor provisions that allow a payor to withhold distribution of production payments without interest.
The first safe-harbor provision applies if the payor is actively drilling for oil or gas on the property. The second safe-harbor provision applies if the payor is not actively drilling for oil or gas on the property, but the payor has a good faith intention to resume drilling within one year.
In the case you mentioned, the court held that Ovintiv established as a matter of law that it was entitled to withhold distribution of production payments without interest under the second safe-harbor provision. The court found that Ovintiv had a good faith intention to resume drilling within one year, even though it had not yet secured all of the necessary permits.
The court’s decision is consistent with the purpose of the statutory safe-harbor provisions, which is to protect payors from being forced to make distributions of production payments when they are not able to do so without jeopardizing their ability to continue drilling.
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That started in 2021 with B## vs strick- Case? I don’t know the rules. I’m not sure if you can put names yet on forum hence the codes talk lolz Did they render judgment yet? I had never heard of that 1776 rule of law, however Ive been researching any other cases. Fascinated, Did you the attorney was on to something or do you feel is that he over reaching?
I will be sure not to lease to OVintiv! It is strange that a company would spend millions of dollars drilling wells and not have the complete title ahead of time. It’s sort of like buying a ranch and paying for it without a complete title or title insurance policy.
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Shouldn’t the oil company be forced to deposit the money in a secure account with the Court?
Helen, I may be involved in the same Interpleader that you refer to? Do you know who the operator is? The one we own is in Winkler County.
Good afternoon, thank you everyone who has responded to my question. Please keep them coming. This is what is so great about this forum: it’s members willingness to join in a discussion. I look forward to the day that I might be able to help someone else. Jvance, the well is located in Winkler County, E/2 of Section 6 in Block B-6. Let’s visit more if you are involved. AMcCluskeyLaw, JR.Ewingish, Mineral_Owner5 and MsSewell really good information! I’m still doing research on what you provided.
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