MRP 13: Royalty Audits and Litigation with Attorney Spencer Cox

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About The Guest:

Spencer Cox is an attorney for Burns Charest LLP, where he represents individuals and business in complex litigation situations inside and outside of the mineral rights world.  Mr. Cox was born in Paris, Texas where he attended high school.  After graduating, he served in the U.S. Navy as a Naval Aviator and flight instructor in the F/A-18 Super Hornet, and recorded more than 400 arrested carrier landings.  Mr. Cox graduated magna cum laude from Harvard Law School before clerking for the Honorable F. Dennis Saylor IV, of the U.S. District Court for the District of Massachusetts.

Topic Outline:

• Oil and Gas Royalty Audits when, why and how?
• Audits – the grey area of lease law
• Release litigation, how often does it happen? When is it a good idea?
• Funds held in suspense, what should you do?

Background Questions:

• Being born and raised in Texas, were you always aware of mineral rights or what got you interested in the mineral rights world?
  • Did you think during your military career, that mineral rights law would be where you’d end up?
• You are currently with Burns Charest, what states are you guys licensed to practice within?
• What is the focus of Burns Charest? I know you guys are not limited to just mineral rights law, can you speak a bit about that?
• Do you find having experience in outside industries helps serve the mineral rights world?

Royalty Audits & Deductions

In Episode 12, we briefly touched on royalty audits, the importance of reserving the right to audit, and doing so as your royalties come in. As a mineral owner, I know that lease law regarding royalties can be a very grey area. It’s not always as simple as reading the lease.

• What is the first step when a client comes to you suspecting that deductions have been withheld that should be?
• Once you’ve established there is in-fact something to pursue, it’s never the wish of either party to use the option of litigation, what are some of the steps your firm’s takes as an attempt to rectify and retrieve those deductions?
• In my experience, it’s typically not the intention of oil companies to pay incorrectly. Do you often find the problem is easy to rectify once the lines of communication have been opened?
• At what point does litigation become the option to pursue in situations like these?

Thank you Spencer, for the explanation of what you guys do for your clients in royalty audits.  If you don’t mind I’m going to hit you with a couple questions from the mineral rights owner’s perspective that I can imagine our audience would have!

• When a mineral right owner is seeking someone to perform a royalty audit, what is it they need to have in hand or understand so that you guys can begin your process?
• Is there a situation, where it simply isn’t enough monetarily for it to make sense to pursue?
• If your firm does establish there is something to pursue, what does client/attorney agreement look like in terms of payment?

Lease Litigation

It’s not often we hear from mineral owners who wish to get out of lease they, or a predecessor signed but it does come up. I know there is no one size fits all answer in these scenarios. Is this something that comes across your desk often?

When mineral right owners do seek to get out of a lease, are there common reasons why? 

• Are these leases many times very dated and held by production from for example to the 60’s & 70’s?
• Are there a few “good” reasons you may share that it would make sense for people to seek an attorney for litigation?

Funds Held in Suspense & Back Pay Statutes

I’ve personally encountered the scenario of an oil & gas company producing on lands without approaching us or paying what we believe to be due royalties. First and foremost on this topic, it’s my understanding that (in Texas at least) the court’s stance is that it’s the mineral rights owners duty to ensure they are keeping track of funds owed by utilizing publicly available information and identifying issues before the statute of limitations runs out. Is that correct?

Once a mineral right owner has identified aproducing oil or gas well on their lands which they are not being paid royalties, what must they do to protect these funds?

Thank you Spencer, for letting us take a deep dive into your world of mineral rights litigation! If our audience would like to find you, what would be the best way for them to get in touch?

How to contact Spencer:

• Burns Charest LLP Website
• Telephone: 469.904.4550
• Email: scox@burnscharest.com

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Thanks again to Spencer Cox for joining us.    Until next time!