Gas Royalty Owner Learns Hard Lesson in Texas Supreme Court Case

The Texas Supreme Court has ruled against a gas royalty owner who filed suit against the Shell Oil Company for underpayment.  The case, Shell v. Ross, decided in December, 2011, demonstrates that royalty owners must be vigilant in protecting their interests.

Ralph Ross, whose family had contracted with Shell for gas drilling beginning in 1961, claimed that Shell had underpaid royalties for some time.  The company had agreed to pay royalties based on the “amount realized” from the gas.  However, from 1988 to 1994, Shell paid based on a “weighted average,” and from 1994 to 1997, the company admitted that it paid royalties based on an internally-created figure for which it allegedly had no explanation.

Ross sued Shell in 2002, and the company’s sole defense was that the four-year statute of limitations for contract actions had passed.  A Texas jury disagreed, awarding Ross $72,000.  The jury found that the “fraudulent concealment” doctrine applied, allowing Ross to avoid the statute of limitations.

The Texas Supreme Court overruled the jury’s verdict.  The Court found that Ross could have learned of the underpayment within the limitations period by accessing records available to the public, and should not have relied on a statement provided by Shell.

The state’s high court has in effect issued a warning to oil and gas royalty owners: it is your responsibility to ensure that you are being paid what you are entitled to.  As a consequence, if you have any question about royalties you are receiving, it would be a good idea to have royalty contracts and payments reviewed by an experienced oil and gas attorney at least every three years.

Gregory D. Jordan is an Austin oil and gas attorney and Texas oil and gas litigation lawyer.  To learn more, visit https://www.theaustintriallawyer.com.