Texas Oil and Gas Attorney Blog
The Fifth Circuit Court of Appeals decided an interesting case involving recoupment of overpaid oil and gas royalties. In DDR Weinert, Ltd. v. Ovintiv USA, Inc., No. 23-50479, 2025 WL 636315 (5th Cir. Feb. 27, 2025), a family named Richter owned four tracts in Karnes County, Texas. They sold those tracts to DDR.
Ovintiv (formerly Encana), the operator of the wells on the property, discovered that the Richters had been overpaid approximately $608,000.00 in royalties since 2016. Ovintiv notified DDR that it would be recouping the overpayment through deductions to DDR’s royalties, even though the overpayment was made to the prior mineral owner. Naturally, DDR filed suit.
Equitable recoupment is a commonly accepted remedy in the oil and gas industry. The Court stated that the criteria for equitable recoupment are: (1) an overpayment was made, and
(2) both the creditor’s claim and the amount owed the debtor must arise from a single transaction. The Court held that there was clearly an overpayment, and that the overpayment and recoupment arose from the same transaction.
It is important to note that DDR is an entity that the Richters own and control and the purchase by DDR from the Richters was not an arm’s length transaction. If there had been an arms-length sale, the Court could very well have decided differently.