Texas Oil and Gas Attorney Blog
The Texas Supreme Court, in the recent decision of BPX Operating Co. et al. v. Margaret Ann Stockhausen, denied an oil company’s claim that acceptance of royalty checks by the mineral/royalty owner ratified the oil company’s illegal pooling of her property.
Strickhausen owned property in LaSalle County, Texas. She negotiated a lease that strictly prohibited pooling under any circumstances without her express written consent. Notwithstanding this lease provision, BPX Operating Co. (formerly BP) pooled her property without her consent. As soon as she learned that BPX had pooled her interest, Ms. Strickhausen had her lawyer write BPX reminding them of the anti-pooling clause in the lease and asking for the authority by which they pooled her property. The oil company responded by acknowledging the anti-pooling provision and requesting a ratification of the pooled unit. The oil company also threatened to put her royalties in suspense if she did not sign the ratification.
Ms. Strickhausen did not sign the ratification. She continued to get royalty checks, which were based on the pooling unit allocations, which she cashed. The oil company then offered to settle her wrongful pooling claim. Ms. Strickhausen rejected that offer and countered with a different settlement offer. Ms. Strickhausen apparently believed the royalty checks were the royalty she was entitled to under the lease without pooling.
BPX argued that the acceptance of royalty checks, without any other evidence, as a matter of law automatically established that Ms. Strickhausen had ratified the pooling unit. The Court disagreed and stated that “…whether Strickhausen impliedly ratified the pooling depends on whether she exhibited an objective intent to do so. As always, determining objective intent requires an examination of all the relevant circumstances. While the circumstances here include Strickhausen’s acceptance of royalties calculated on a pooled basis, they also include many other objective manifestations of her rejection of the pooling and her intention to assert her contractual anti-pooling rights.” In this case, the Court noted that Ms. Strickhausen could have reasonably believed that the royalties were due her and were being paid on a non–pooled basis, especially in light of the strict anti-pooling language in her lease. The Court said that the BPX could not have reasonably inferred by her acceptance of the checks that she was consenting to the pooling.
This seems to be a well reasoned opinion and certainly favored the mineral/royalty owner. However, there are many cases in which acceptance of royalty checks has been held by a Texas court to be a ratification or waiver of an unauthorized pooling unit or some other violation of the lease by the lessee. Texas mineral and royalty owners, when faced with any other violation of their oil and gas lease, should always seek the counsel of a Texas oil and gas attorney before they cash royalty checks to be sure they preserve their remedies against the operator for violations of the lease.