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SOUTHEAST TEXAS RECORD

Saturday, April 20, 2024

Texas oil owners file suit against oil company for unpaid royalties

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VICTORIA – Texas mineral rights owners claim an oil company purposefully deceived them for at least two years by manipulating production data, according to a complaint filed in the Southern District Court of Texas, Victoria Division.

Eugene and Kimberly Cran, the owners of mineral rights to South Texas Eagle Ford Shale in Dewitt County say Talisman Energy USA Inc. purposefully underpaid them by 20 to 30 percent.

Pennsylvania-based Talisman, a subsidiary of Calgary's Talisman Energy, was new to Texas and soon learned their accounting practices weren't compatible with Texas law. The company became an affiliate of the Spanish integrated energy company Repsol in May 2015.

The Crans have been involved in numerous oil, gas and mineral lease contracts. The contracts allow them to develop leased premises and produce, market and sell oil and gas.

When Talisman entered into the Texas oil and gas market in 2010, it reached a 50-50 agreement with another global energy company Statoil for the development of gas interests. In 2013, the agreement was modified and the two agreed to share the responsibility of operating wells in the Eagle Ford lease holdings. Statoil would operate on the eastern portion and Talisman would operate on the western side. The two would each pay the owners' royalty payment from their share of the production required by the Texas oil and gas law, the complaint says.

Companies are required by law to report all well production data to the Texas Railroad Commission and Texas comptroller. It also specifies that royalty payment must be accompanied by a check stub containing details from the drilling including the well identification, the volume of production, price, the royalty owner's share of production from the drilling unit, expense deductions and taxes. This allows the recipient to determine if the payment meets the company's obligation under the lease.

By July 2013, production levels reported by Talisman on the Cran's property was reported to be 20 percent smaller than those reported by Statoil for the same wells. The discrepancy between the two companies' royalty payments increased even more by February 2015. The complaint says based on the 50-50 agreement, the Crans believe Talisman was not paying the amount that was due. The check stub Talisman provided the Crans, which is supposed to contain the necessary information, was done in a confusing format, making it difficult for the Crans to determine why there was a difference.

The complaint says beginning no later than July 2013 Talisman had “secretly implemented a scheme to alter wellhead production data received from Statoil by reducing measured production volumes arbitrarily by approximately 20 percent.” That production data was then uploaded into the Talisman's royalty payment accounting system and was used to pay royalty owners a reduced amount. The data was reduced by 30 percent in February 2015.

Talisman claimed the reason for the reduction is to account for the loss of oil (shrinkage) after transporting and marketing processes that do not qualify for royalty payments. In Texas “shrinkage” is not set as a static percentage and there is no common practice that allows a company to apply a fixed shrinkage rate.

When the Crans contacted Talisman about the discrepancy between royalty payments between them and Statoil, they were ignored or the response was misleading, according to the complaint. The complaint also stated that the Crans did not and could not have reasonably discovered the manipulation of the data until a former Talisman employee revealed it to them in 2015.

By reducing the royalty payments the Crans, without notice, were charged by Talisman for the expense of production, gathering, dehydration and other items related to selling oil or gas, the complaint says.

The Crans are seeking to recover actual damages, consequential damages, interest, penalties, attorney's fees, termination of lease fees and any other fees determined by the court an amount that will exceed $75,000. The Crans are being represented by Provost Umphrey Law Firm.

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