Oil and Gas Lawyer Blog
When exploration began in the Marcellus Shale in Pennsylvania, it was the wild west transported to the east. Speculators sprung up and bought oil and gas leases with the expectation of selling them for a profit. The forms of oil and gas leases I saw being used in Pennsylvania were the worst I have seen in my career. Speculators paid for leases with 90-day drafts, hoping they could find a buyer for the leases in time to pay the bonuses.
But landowners soon caught on. They organized themselves, creating informal associations in geographic areas to negotiate leases as a group. The associations hired competent counsel. Large blocks of land were offered to multiple companies, forcing companies to bid against each other. Landowners educated themselves and realized that there was power in numbers.
Texas landowners, on the other hand, are an independent lot. They don’t like to give up their autonomy. They don’t like sharing their lease terms with other landowners. Every landowner thinks his lease form is the best. Landowners don’t like regulatory authorities telling them what they can and can’t do. One riot, one ranger.
In Texas’ last legislative session, three organizations representing land and mineral owners opposed legislation seeking to legalize allocation wells, House Bill 1552: Texas Land and Mineral Owners’ Association, the National Association of Royalty Owners-Texas, and Texas Cattle Raisers’ Association. Representatives and members of those associations testified and lobbied against the bill, and it did not make it out of committee. It is my opinion that the bill would have severely eroded mineral owners’ bargaining power with exploration companies. I testified against the bill.
Texas Land and Mineral Owners’ Association and NARO-Texas also filed an amicus brief this year in Chesapeake v. Hyder, a case dealing with the ability of lessees to deduct post-production costs from royalties. TLMA and NARO-Texas hired our firm and Raul Gonzalez, retired Supreme Court Justice, to file the brief on their behalf. The Texas Supreme Court recently ruled, 5 to 4, in favor of the royalty owners in that case.
TLMA and NARO-Texas both have conventions and provide educational opportunities to their members. Their boards are volunteers who work hard to protect and advance the interests of mineral owners. The organizations have relatively small membership compared to the number of mineral and royalty owners in Texas. Their budgets are small.
Texas mineral owners could learn from Pennsylvanians. Knowledge is power. There is strength in numbers. Texas mineral owners should join and support efforts of organizations like TLMA and NARO-Texas. What happens in the courts and legislature matters. There is such a thing as good government, good regulatory policy. The exploration industry in Texas has created wealth for thousands of Texans, but the interests of oil companies are not always aligned with the interests of land and mineral owners. Oil companies in Texas have powerful lobbies – witness the recent passage of House Bill 40, severely limiting the ability of municipalities to regulate oil and gas exploration in their jurisdictions. The efforts of TLMA and NARO-Texas remind legislators that oil companies don’t vote – people do. Legislators pay attention when members of those organizations engage in letter-writing campaigns to oppose or support legislation. Mineral owners in Texas should join one or both of these organizations, and get involved. It will be time and money well spent.