Oil and Gas Law in Texas and New Mexico

The Permian Basin is one of the most oil and gas productive formations in the U.S. It is spread across Texas and New Mexico, and while a great deal of land is already owned by oil and gas producers, there are also several areas owned by individuals and other businesses that could contain oil and gas reservoirs. Because of this, mineral rights are a significant legal subject in Texas and New Mexico.

Oil and gas law govern various property rights, mineral ownership agreements, oil and gas leases, royalties, extraction and production rights, land use and development, as well as transport and delivery.

A fundamental law in Texas and New Mexico is that property owners’ rights extend to the mineral deposits under the surface of their property. As the owner of the minerals on your property, you have the right to do what you want with them, including leasing the mineral estate to another individual or business.

Some Common Oil and Gas Laws are:

  • Rule of Capture
    Another fundamental oil and gas law in Texas is the “rule of capture.” Under this rule, a person owns any oil and gas produced from a well bottomed on their land, regardless of where the oil or gas originated, with a few exceptions. Negligent drilling that causes damage or destruction of a neighbor’s oil and gas is prohibited and can cause an oil and gas producer to be liable for their neighbor’s damages.This is just one example of how a person or business’s oil and gas production can impinge on another party’s production and lead to legal claims in Texas. New Mexico has limited the rule of capture.
  • Compulsory Pooling
    Texas and New Mexico both have a compulsory pooling law. This allows operators that cannot obtain the mineral rights to all of the property over the geological reservoir to still be able to drill the well. Non-consenting property owners in both states can be subject to a risk penalty up to a certain percentage of the production costs.If you are dealing with a forced pooling, contact an oil and mineral rights attorney right away.

These are only a few aspects of oil and gas law in Texas and New Mexico. To learn more about the law and your rights and options, contact us right away. We have offices in San Antonio and Odessa, TX and Hobbs, NM. We are nearby to help you deal with an oil and gas ownership, contract, or payment dispute.

Gas and Mineral Rights

As a property owner, you own the minerals that are part of your land. It is generally lawful for you to separate your surface estates (the property above the ground) and your mineral estates (the property below the ground).

You can lease or sell your mineral estate to another party while maintaining ownership of the surface estate. You can lease or sell both estates to the same or separate parties. You also can sell the surface estate while retaining ownership of the mineral estate.

When these two estates are separated, however, disputes can arise. Our mineral rights attorneys at Kemmy Law Firm have handled many disputes over New Mexico and Texas mineral rights’ ownership, leases, and royalty payments.

Leasing Mineral Rights

Leasing mineral rights is a common practice in Texas and New Mexico. It is not always a simple or straightforward process, though, and we often hear from landowners who have been taken advantage of by large oil and gas companies.

As a property owner, you have the right to negotiate the terms of the oil and gas lease. If you are approached regarding a lease, it is essential you talk with an oil and gas attorney before agreeing to any specific terms. Oil and gas reservoirs are lucrative for companies, yet many operators approach landowners with terms that are unfavorable to you and can be disastrous to your property.

Voluntarily leasing mineral rights is not only common in Texas and New Mexico, it also is encouraged by law. If an oil or gas producer is able to secure leases with a majority of landowners over a certain geographic reservoir, and only one or a few landowners refuse to lease their mineral rights, then the state’s compulsory pooling law may allow the producer to go ahead and drill the well. As a non-consenting property owner, you would be subject to a risk penalty.

Inheriting Mineral Rights

You might inherit a mineral estate or an interest in a mineral estate from a relative or other individual. This can be a challenging process, especially if the inheritance was unexpected. It also can become more challenging as mineral rights are divided into a greater number of interests in each generation. This issue is known as fragmentation or fractionalization.

When you have inherited a small interest in mineral rights in Texas or New Mexico, you should talk with a lawyer about your options. Even a small portion of a mineral estate can be profitable. However, it also could be more trouble than it is worth, depending on your perspective. You may choose to sell or lease those rights to someone else.

If you inherited surface property in Texas or New Mexico, you should not assume you inherited mineral rights too. This can be a complex question, and it depends on whether the surface and mineral estates were previously severed.

Types of Agreements

If you choose to sell or lease your oil and gas mineral rights in Texas, New Mexico, or anywhere in the Permian Basin you need to work with a mineral rights lawyer. By retaining a knowledgeable and experienced attorney, you protect yourself from oil and gas operators acting in bad faith. You will be in a better position to obtain favorable terms in exchange for giving up your rights and, at times, being inconvenience by production.

Key terms related to oil and gas agreements include:

  • Mineral Deed: Landowners can severe and transfer mineral rights through a mineral deed in Texas. Creating a mineral deed ensures mineral rights become legally separate from surface rights. A deed is a conveyance of property from one party to another. The holder of the mineral deed is entitled to extract the minerals and reasonable surface use of the property to do so. The deed holder can lease their oil and gas rights to a third party and is entitled to all of the income generated from the minerals.
  • Mineral Rights Lease: Through a lease, a property owner can give an oil and gas company the right to enter the property and conduct tests to determine if a potentially profitable reservoir exists. A lease gives the company a specific period for exploration. If it finds a suitable reservoir, it can proceed with production prior to the expiration of the lease. If production has not begun before the end of the lease term, then the mineral rights revert back to the owner. If oil or gas are produced from the land because of the lease, the owner shares in the profits through royalties.
  • Non-Participating Royalty Interest (Royalty Deed): Under this type of agreement, you have an interest in oil and gas production related to a specific mineral estate, but you are not responsible for any production costs. Because you are “non-participating,” you do not have any right or obligation to make decisions regarding the lease, and you do not share in any rents or bonuses. You have fewer rights than a regular royalty owner who participates in some aspect of the mineral rights lease or production. NPRIs are commonly used to pass interests in wells to surviving children and grandchildren.
  • Overriding Royalty Interest: Overrides are fractional interests with the right to participate in or receive proceeds from the sale of oil or gas. They are additional royalties from those provided in an oil and gas lease. They are often assigned to previous property owners, geologists, landmen, brokerages, any other person or business that can maintain an interest in the property. They do not impact the rights of the mineral owner because the interest is not in the minerals themselves but instead is in the proceeds from the sale of the minerals. Overrides expire in specified periods.
  • Working Interest in Oil and Gas: Under a working interest, also known as an operating interest, an investor participates in the operational activities and is liable for a portion of production costs. In return, they receive profit from any successful wells. This differs from an arrangement in which an investor is only responsible for their initial investment and then receives a smaller portion of the profits through royalties.

Common Oil and Gas Mineral Rights Legal Disputes

At Kemmy Law Firm, our oil and gas lawyers deal with all types of disputes related to mineral rights and oil and gas contracts.

The most common oil and gas disputes we handle include:

  • Payment Disputes: We often work with individual property owners and smaller businesses that claim to have not received their fair share of royalties, bonus payments, or other payments from an oil and gas company or mineral rights lessee. In some cases, no payment is received at all. In others, some payment is received, and the dispute is over the proper calculation of the payment.
  • Contract Disputes: We routinely work with individuals and businesses in regard to breach of contract claims and other oil and gas contract disputes. If you believe another party has materially breached a mineral rights lease or oil and gas contract, contact us right away.
  • Property Damage: Mineral leases and other arrangements often allow oil and gas companies to enter a landowner’s property for the purposes of exploration and production. We often see situations in which companies destroy the owner’s property beyond what is necessary, including destroying structures and contaminating the water or soil. Or, in many cases, companies fail to adequately prepare and compensate owners for how the property will be used and altered.

Recovering Oil and Gas Compensation

When you are dealing with a mineral rights or oil and gas contract dispute, it can be costly. An oil and gas company may have failed to pay you thousands of dollars in royalties. The damage to your land may be extensive and impossible to repair fully.

Whatever your experience, talk with an oil and gas lawyer about your economic and other intangible damages. Depending on the circumstances, you may be entitled to:

  • Past and future unpaid payments, including royalties
  • Lost future income
  • Depreciation of damaged real property and structures
  • Repair and replacement costs
  • Out of pocket expenses, including appraiser and experts’ fees
  • Statutory damages for fraud, deceit, or malice
  • Past and future mental anguish

Proof of Damages

When you pursue legal action against an oil or gas company, you need proof that the party violated a contract or law. You also need proof of how this breach or violation harmed you. The harm could be financial losses, property damage, mental anguish, and more.

Proving the severity and value of your damages can be difficult, which is why we recommend working with an oil and gas attorney from the very beginning.

Document Property Damage

One step in proving damages is gathering paperwork regarding your expenses. This includes documentation of hiring one or more businesses to repair the damage to your property or replacing a destroyed structure on your property. If you have not already, we will guide you in hiring an appraiser to determine if the value of your property has been impacted. We find that oil and gas production often harms the value of the surface property, which impacts your ability to sell your home for a fair value in the future.

Royalty Accounting

A lot of factors can be disputed in relation to royalties owed, including whether the lease intended for a market value of proceeds royalty. If you had a market value agreement, then the market price for the mineral at the time of the sale may be in question. We would hire an expert to testify regarding the value of the oil and gas at the relevant time.

If you were meant to receive royalty payments, we will also hire a financial or accounting expert to do the math and compare what you received versus what you should have received based on the contract.

We may also find evidence that your royalties are being reduced by the company misrepresenting production volume, subtracting inappropriate fees, or inflating production costs. We have seen oil and gas companies use all sorts of tricks to avoid reducing royalty payments. To further uncover these types of fraud, we may hire a forensic accountant or industry expert to find proof among the companies’ production and financial records.

Many damages in an oil and gas case are based on financial documentation. However, Kemmy Law Firm also has experience calculating the value of intangible harm, such as mental anguish. We have handled cases in which mental anguish arises due to destroyed property and contaminated well water. We have had property owners deal with nuisances, such as strong odors, noise, and visible production, which makes it impossible to enjoy their property.

It can be challenging to place a value on mental anguish, but we can do so by looking at settlements and court awards in similar cases throughout Texas and New Mexico.

Oil & Gas Rights Lawsuits and Litigation

Our oil and gas lawyers will guide you through the process of handling a mineral rights or oil and gas dispute.

When first taking on your case, we will:

  • Review the contract or law that governs your relationship with the other party;
  • Investigate the other party’s wrongdoing;
  • Collect evidence of your injuries, including unpaid royalties, property damage, and mental anguish;
  • Send a demand letter to the other party seeking an appropriate sum of compensation or for certain activity to cease; and
  • Attempt to negotiate a resolution in your favor.

A demand letter may be effective. But when we do not receive a response to our letter, or we are unable to negotiate an appropriate resolution to your claim, our next step is to file a lawsuit.

The litigation process entails:

  • Filing a complaint in state or federal court;
  • Serving the other party or parties with notice of the suit;
  • Receiving the defendants’ response;
  • Amending the complaint if necessary;
  • Utilizing the discovery process by taking depositions, filing interrogatories, and making demands for documents;
  • Filing any necessary motions to request the judge to make substantive or procedural decisions prior to trial;
  • Entering into settlement negotiation with the defendant(s) and resolving the claim; or
  • Preparing for trial, including participating in a pretrial conference;
  • Presenting evidence of the defendants’ guilt and your damages at trial.

How We Approach Oil and Gas Mineral Rights Cases and Win

We can never guarantee a specific outcome in a case. However, we can assure you that we are experienced litigators with an excellent track record of success. At Kemmy Law Firm, we never push our clients to accept low settlement offers. As skilled litigators, we are not afraid to take your case to court when that is the best chance of obtaining a resolution in your favor.

When we take on your case, we prepare from the very beginning as if we will go to trial. Many cases settle before court, but we never assume. We believe in thoroughly investigating every case. Our legal team will uncover the entire story of what happened and why.

By focusing on being trial ready, we are prepared to aggressively negotiate for your benefit. When we are confident that we have the evidence we need for trial, we also have the leverage we need to demand full and fair compensation.

Another reason we have an excellent record of obtaining settlements and verdicts for our client is we intentionally limit our caseload. Mineral rights and oil and gas cases are complex. Lawyers who take on too many cases limit the amount of time they can dedicate to each one, which hurts their clients. We prioritize having plenty of time for each case.

Our hope is that you feel like our only client.