Oil and Gas Lawyer Blog

The Texas Supreme Court has once again reversed a jury verdict in favor of a royalty owner, holding that their claim is barred by limitations. The Court today issued its opinion in Shell Oil Company v Ross, reversing the judgments of the courts below in favor of Ross for $72,000 in unpaid royalties.

I wrote about this case back in January, see my previous post here.

Ross’ lease required that royalties on gas be based on the “amount realized” by the lessee. But from 1988 to 1994 Shell paid royalties based on a weighted-average price instead of the price it received for the gas. Then from 1994 to 1997, Shell paid royalties based on an internally generated “transfer price,” which Shell admitted it could not explain. In both cases, Shell admitted that it had not paid royalties as required by the lease. Its sole defense was that the royalty owner had failed to bring his claim within the four-year statute of limiations.

Another interesting case is pending before the Texas Supreme Court, this one involving condemnation of a pipeline easement. The San Antonio Court of Appeals, in LaSalle Pipeline v. Donnell Lands, affirmed a jury verdict awarding $650,000 to the landowner. The Supreme Court has asked for briefs on the merits but has not yet agreed to hear the case.

The Donnell family own an 8,000-acre ranch in McMullen County. LaSalle Pipeline sued to condemn an easement for a sixteen-inch gas pipeline across the ranch, for a length of 4.4 miles. In Texas, a condemnation case originally goes to three “commissioners” – citizens in the county appointed by the court to determine the amount to be awarded the landowner for the pipeline easement. The commissioners awarded the Donnells $226,000 for the easement – about $160 per rod, or $9.73 per foot. (A rod is 16.5 feet.) The Donnells appealed to the district court in McMullen County, where there was a trial de novo, meaning that the commissioners’ award was not considered and the jury was asked to determine the amount of the award based on evidence at the trial.

There are three elements of damages in a pipeline condemnation case: the damage to the land within the permanent easement; the temporary damage caused to the land by the additional workspace needed to lay the pipeline; and the diminution in value of the remaining property caused by the existence of the pipeline. These damages are estimated by qualified real estate appraisers, who testify as experts at the trial.

Mineral owners have lost another substantial verdict against an oil company based on their failure to bring the claim within four years. In Samson Lone Star v. Hooks, No. 01-09-00328-CV, the Houston First District Court of Appeals reversed a verdict and judgment against Samson for $21 million, holding that the claim was barred by the four-year statute of limitations as a matter of law — even though the jury had found that the Hooks should not have discovered Samson’s fraudulent conduct until April 2007, less than four years prior to their suit.

The case is reminiscent of a similar case, Exxon v. Emerald, decided by the Texas Supreme Court in 2009, in which the Supreme Court reversed an $18 million verdict against Exxon, again on the basis that the mineral owners’ claims were barred by limitations — despite an express finding by the jury that the plaintiffs had filed their claim within four years after they discovered or should have discovered Exxon’s fraudulent conduct. (Pat Lochridge, the lawyer who represented Exxon in the trial court in Exxon v. Emerald, represented the plaintiffs in Samson v. Hooks. You win some, you lose some.)

The Supreme Court did it again in BP v. Marshall, decided earlier this year. Again the Court overruled a jury verdict in favor of royalty owners, holding that their claim was barred by limitations as a matter of law.