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Be Careful What You Sign For

Is that mineral or royalty "lease" really a lease -- or a conveyance?

Be wary of royalty leasing, the scheme which has been preying on trusting mineral owners in an "attempt to acquire their interests at a significantly below-market value by relying on deception [and] a sleight of hand in drafting..." (Hester, Davis).

How Section 5.151 Came To Be

In response to an influx of mail-order mineral buyout scams, the Texas Senate passed Senate Bill 436 which then became Section 5.151 of the Texas Property Code. It requires "an offer to purchase the mineral or royalty interest in a property to conspicuously state that the conveyor of the interest is indeed selling that interest" and allows "a conveyor of interest to bring suit against a purchaser if the purchaser does not provide that notice." Should a purchaser not give this required notice, the conveyor of the mineral or royalty interest is able to sue the purchaser "and recover the difference between the amount paid for the interest and its fair market value as well as court costs and attorneys' fees."

The Birth of The Royalty Leasing Scam

To avoid Section 5.151, scammers developed a new fraudulent mineral-buyout scheme known now as the "royalty lease." Essentially, fraudulent purchasers propose a "royalty lease" which is comparable to conventional oil and gas leases on the targeted property. However, these offers are significantly lower than the market value for royalty interests.

Bridges v, Ridge Natural Resources, LLC; Double Eagle Royalty, LP v. Ridge Natural Resources, LLC; Moor v Plains Natural Resources, LLC; Lackey v. Apache Resources, LLC; Stepken v. Hawa; Horn v. Smajstrla are just a handful of cases which have royalty leases at their center.

What Can You Do?

Before signing any documents, reading each document carefully in its entirety (including all fine print) is essential for the protection of your mineral or royalty interests. It's advisable to consult an attorney with specialization in oil and gas. If a royalty lease has already been signed, an oil and gas litigation attorney is able to determine if and how the owner may recover lost interest and assert claims against the purchaser.


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