In Texas, the Natural Resources Code, in Section 91.402 governs when royalties must be paid to royalty owners. Section 91.402(b) provides that royalty payments may be withheld without interest if there is a dispute concerning title that would affect distribution of payments or if there is a requirement in a title opinion that places in issue the title, identity or whereabouts of the payee and that is not been satisfied by the payee after a reasonable request for curative information.
Representative Reggie Smith, a Republican from Sherman, Texas, has introduced House Bill 3262, which would amend Section 91.402(b) to deprive royalty owners of the right to sue their oil company operator for a breach of contract to recover royalty payments that are withheld due to a title dispute unless the lease states otherwise. The specific language of the bill is that “a payee does not have a common-law cause of action against a payor for withholding payments under Subsection (b) unless, for a dispute concerning the title, the contract requiring payment specifies otherwise“. In other words, if an unscrupulous oil company is short of funds and holds back your royalties to use them as operating expenses under the guise of a trumped up title dispute, the royalty owner has no recourse!
This is a bad bill for a number of reasons, and it will hopefully not pass. Oil companies are already protected in the case of title disputes by Section 91.402 of the Natural Resources Code and there is no logical reason to add this language. Mineral owners with new leases can add language to their lease to counteract this bill, but that is no comfort to mineral owners whose leases are already signed.