» Exxon Wants Texas Supreme Court to End Oil and Gas Royalty Dispute

Exxon Wants Texas Supreme Court to End Oil and Gas Royalty Dispute

Exxon Mobil Corporation has filed a brief with the Texas Supreme Court seeking to end a long-running dispute with royalty owners.

The owners allege that they were misled into selling their gas and oil interests for a reduced price; the company argues that the royalty owners should not get a new trial after a previous appeal resulted in the loss of a $21 million judgment in their favor.

The royalty owners claim that Exxon misrepresented the productivity of their wells, leading the owners to believe they were worth less than they were, which in turn influenced their decision to sell their interests to a different company at a reduced price. Exxon argues that the owners’ decision could not have been affected by Exxon’s representations, because the owners repeatedly denied that the wells were losing value.

Exxon’s brief claims that the royalty owners did not justifiably rely on the company’s representations, because they “distrusted everything” the company said and conducted their own investigation, ultimately rejecting Exxon’s suggestion that the leases should be modified.

The underlying dispute began in 1996, when royalty owners sued Exxon, claiming that the company was sabotaging Refugio County wells by plugging them with foreign material. According to the lawsuit, Exxon attempted to negotiate a lower rate on the leases by claiming that productivity was diminishing. When the owners refused to accept less than a 50 percent royalty rate, Exxon terminated the leases. The owners later leased to Emerald Oil and Gas for a 30 percent royalty rate, according to court records.

The fraud claims were dismissed prior to trial, with the trial court finding no evidence that the royalty owners relied on Exxon’s statements. The other claims (for breach of contract and waste) resulted in a $21 million verdict in 1999. But after a series of appeals, the Texas Supreme Court reversed that verdict in 2009.

However, because the appeals court did not address the issue of whether the fraud claims were dismissed improperly, the Texas Supreme Court remanded the case for review of that issue. The lower appeals court then found that the fraud claims were improperly dismissed and sent the case to the trial court for a new trial.

Exxon now argues that the Texas Supreme Court should step in again and reverse the order for a new trial.

According to Exxon’s brief, the appeals court perceived an attempt at fraudulent inducement in Exxon’s statements which, even though they were rejected at the time, were nevertheless relied upon later, in separate negotiations with a different party.

The law, Exxon said, should not go that far.

For a concise case summary and further detail, click here.

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