How can one enforce the no-cost clause in a mineral lease?

Members of my family signed a lease with EXCO several years ago.  Pertinent clauses included a 25% royalty and a “no cost “ production clause.  When EXCO had financial difficulties, they sold part of their leasehold to TGNR.  

EXCO has honored their agreement on the portion they retained, but TGNR *continues* to make what we consider illegal production cost deductions, despite several registered letters requesting they cease doing so, and requesting appropriate remuneration for the questionable deductions.  

Although it is a small parcel of only 10 acres, those deductions add up over time.  We consider this the equivalent of theft.  

Do we have any recourse?  If so, what is it?

jb nabors

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jb, who crafted the no cost clause?  Your O&G attorney or was it supplied by EXCO?  To be legally enforceable, the clause wording must comply with Louisiana case law.  Determining that is a job for an experienced O&G attorney.  If the clause is deemed enforceable, a demand from a well known lawyer or firm may be all you need but be aware of the fact that those attorneys don't make demands without a commitment to file suit if the demand is ignored.  Attorneys that make demands and don't follow up with litigation are soon ignored by O&G companies.

Hi skip!  Thanks for reply!  

When we were in leasing process, we asked EXCO for a “no production cost lease”, to which EXCO agreed and drafted.  

EXCO, even when in financial straits, has honored their clause, even going so far as to pay out of pocket for a different parcel owned/operated by  Chesapeake.  However, after EXCO had to raise capital to meet their obligations,  they sold an interest in their lease to TGNR.  

TGNR has consistently deducted operating costs from our royalty payments, in spite of phone calls and at least two registered letters requesting them to fix the issue. 

The property in question is 10 acres in 26-12-13, DeSoto Parish.  Filing suit can be extremely expensive, as I am sure you are aware.  (Our suit against Chesapeake was settled in our favor, but only after spending ~$150K). The potential gain seems paltry in comparison to the potential cost.  Does a favorable judgement normally include attorney’s fees?

I appreciate your knowledge, your experience, and especially your willingness to share and help!  

gratefully, J B Nabors

Correction:  property is located in 26-12-12.  Sorry

I've never seen a no cost royalty clause, provided by an O&G company or a land company leasing on their behalf, that was worded so that it would stand up in a Louisiana court.  There is case law on the subject and experienced O&G attorneys know how the clause must be worded in order to stand up in court.  If the clause is not worded properly, it doesn't matter that EXCO chose to honor it.  TGNR's lawyers or Division Order analysts may have reviewed it, decided that it didn't meet the letter of the law and then decided that it was unenforceable.  Extreme care should be taken when dealing with the industry.

Well, that sucks!  I fail to understand, though: the clause itself provides absolute certainty of its intent!  I will contact some reputable O&G attorneys with my data.  Thank  you!  

 I think EXCO is an honorable company, and I would be happy to work with them again.  In fact, I would prefer to work with them over any other company we have dealt with! 

We do have a no cost royalty clause drafted by Chesapeake after extensive litigation (working with our legal team) that appears to stand up in court.  (Unfortunately, we did not have the wording of this clause when we contracted with EXCO. )

Yes, it sucks.  I'm glad to hear that you had professional help on your Chesapeake lease.  I want all GHS members to understand just how important it is to get professional help when dealing with O&G firms.  Not just any "lawyer" but an attorney or firm that has a high percentage of their business in O&G and mineral work.  It doesn't matter whether you have five acres or five hundred.  Those mineral rights are a valuable asset, for them and for an operating company, and deserves a high level of due diligence and caution.  Good luck, JB.


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