Houston-based Alta Mesa Holdings LP, Alta Mesa Services LP and Oklahoma Energy Acquisitions has agreed to settle a Kingfisher County lawsuit alleging underpaid royalties for a sum of $4.57 million, according to a report published by The Oklahoman on Sunday.
The settlement covers 115 oil and natural gas wells and their mineral owners. Court approval is required for the settlement.
“In this instance, there were many folks, including our clients, seeing up to 80 percent of their check deducted every month,” said Reagan Bradford, the lead counsel representing the mineral owners in the case. “To get the relief for the class without having to go to trial is an important victory for our clients.”
Bradford was formerly employed by Oklahoma City-based Chesapeake Energy Corporation as an in-house attorney. Bradford has represented both mineral owners and producers.
The Kingfisher County case focused on costs and charges the energy producer passed on to royalty owners by way of deductions from royalty payments. The lawsuit included a contract for the leasehold stating that no deductions would be taken for the “cost of producing, gathering, storing, separating, treating or dehydrating” the oil and natural gas, according to The Oklahoman.
These type of cases hinge on the royalty lease language, which varies from lease to lease.
Rick Howell, president of the Oklahoma chapter of the National Association of Royalty Owners, indicates that the increased drilling activity in Oklahoma is resulting in more line item expense reviews by mineral owners.
“I don’t know if what we’re seeing is more awareness of what’s going on through education programs or if more of it is happening in the industry,” said Howell. “People are more aware of looking at their check stubs and trying to understand it. From our member feedback, they’re starting to pay more attention to it.”
Changes in cost accounting attribute for some but not all of the payment adjustments that can be made. In addition, royalty payments are dependent on commodity prices, which are known for volatility. Some companies do not provide itemized listings of cost deductions, making it hard to determine if they are being charged for postproduction expenses.
“In some cases, it may be a fair deduction,” said Howell. “We just don’t know without seeing the numbers.”
The language contained in the lease governs the costs assigned to the producer and those that may be shared with royalty owners.
“Lease language is important,” said Howell. “Have a qualified oil and gas attorney look at it to see if you’ll be paying those postproduction costs.”
Mineral rights leases typically provide for a period of three to five years for a company to drill a well. If a well is drilled and produces enough oil and natural gas to cover its operating expenses, the lease is considered held by production. In many cases, the lease continues to be held if it contains a producing well, according to the report.
“There are still people held up by leases that were negotiated 80 or 90 years ago,” said Howell. “Lease language became more specific in the ’80s.”
Some leases are currently operating under old contracts while new contracts cover nearby properties.
