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Texas aims to safeguard mineral owners with new legislation

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Oilfield Technology,

Earlier this month Texas Governor, Greg Abbott, signed into law new protections designed to safeguard mineral owners from fraudulent activity and strengthen private property rights.

Royalty owners, who lease the mineral rights beneath their land, represent an significant segment of the oil and gas industry; over 600 000 Texas households receive billions of dollars in oil and gas royalties each year.

In recent years, royalty owners in Texas have become increasingly vulnerable to falsified lease offers that cause minerals owners to unknowingly sell a majority of their royalty interests through intentionally deceptive agreements emulating authentic leasing documentation. Under the guise of an offer to “top lease” minerals in exchange for a cash payment, bad actors have been trying to con mineral and royalty owners, a high percentage of which being the elderly and senior citizens, into selling mineral interests rather than properly leasing them. In these situations, the supposed buyer claims that in exchange for the “top lease,” the mineral or royalty owner will receive a cash payment and a 25% “royalty.” The owner is then presented with a document intended to mimic an oil and gas lease. However, the document is not a legitimate top lease. Instead, the owner is selling 75% of their royalties for as long as the “royalty lease” is in effect. Oftentimes, the goal of such schemes is to try to time the purchases with redevelopment of new horizontal wells and take 75% of the owners’ royalty stream for a minimal payment.

House Bill 3838, approved by Governor Abbott on 10 June 2019, amends the Texas Property Code to require mandatory disclosures in offers to purchase mineral and royalty interests in the state of Texas. Under the legislation authored by Texas Representative Ernest Bailes, a document which does not contain the appropriate disclaimers is void. This will allow operators to have title certainty, because if the document does contain the required disclaimer, it would be presumed valid. By requiring the disclaimer, this practice should be greatly curtailed, if not eliminated, because the vast majority of the sales would not occur if the owners knew that it was not a valid lease.

House Bill 3838 also expands the remedies to be able to rescind the sale and recover damages - including royalties and bonuses paid to the purchaser or any successor, court costs, and attorney's fees - if the purchaser fails to include the required disclaimer as part of the royalty lease.

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