It’s Not Who to Pay, It’s When to Pay: “Due” Under Samson Expl., LLC v.

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Note: The following legal update was featured in NADOA’s 2022 Q4 Magazine.

In Samson Expl., LLC v. Bordages, the Court of Appeals of Texas, Ninth District, Beaumont, examined when royalties under an oil and gas lease became “due,” and whether royalties were properly suspended without interest.  Specifically, it examined lease provisions detailing “when the payment is required … rather than who is to be paid,”1 and whether a claim of “equitable” title as opposed to legal title constituted a “bona fide title dispute” allowing for the suspension of royalty payments without interest.  For the reasons discussed below, the Court found that the obligation to pay royalties had been “triggered” under the lease and was therefore not affected by a dispute as to the payee’s identity.2  Additionally, while the “safe harbor” provisions offered by section 91.402(b) (the “Texas Suspense Statute”) do authorize withholding royalty payments without interest in the event of a bonafide title dispute, the lessors and lessee had expressly contracted around the Texas Suspense Statute in the lease.3  Lastly, even if the “safe harbor” provision was applicable, the Court determined that there was no “bona fide” title dispute regarding the lessors’ mineral interest because the lessee was willing to recognize equitable title as opposed to legal title.4  The Court’s decision for the Bordages affirmed the trial court’s grant of partial summary judgement; however, we note that a petition for review has been filed with the Texas Supreme Court.

In 1999, Samson Lone Star, L.P. (“Samson”) executed an oil and gas lease with landowners Joe A. Bordages, Katherine Bordages Brownlee, Stephanie Bordages Knobel, Joseph A. Bordages III, Joanna M. Pastore, Scott Alan Bordages, and Allison Bordages Koskella, (the “Bordages”) covering 95 acres in Hardin County,Texas.5  A title opinion later commissioned by Samson in 2001 uncovered (among other issues) the absence of a recorded deed in Hardin County,Texas, vesting J.A. Bordages with the undivided 1/3 interest he purportedly received from Charles G. Hooks, et al.6 In an attempt to cure the gap in title, Samson sent a letter requesting the missing deed to the Bordages on May 14, 2002.  In June of that same year, Samson spoke with Richard Pastore, husband of lessor Joanna Pastore, who informed Samson that a deed conveying the 1/3 interest had never been executed.7  According to Mr. Pastore, the parties had instead executed a “Certificate of Interest.”8  After discussing this issue with the attorney who drafted the title opinion, Samson was advised that the ‘“Certificate of Interest vests J.A. Bordages with beneficial or equitable title to the 1/3 interest, but not legal title.”’9  Further, the attorney suggested that Samson ‘“may want to secure an affidavit from Chas. G. Hooks & Sons with the aforesaid Certificate of Interest attached and file it of record in Hardin Co.”’10  Lastly, the attorney clarified that “this won’t cure the defect [but] will help explain the circumstances and put [third] parties on notice of the claim of the heirs of J.A. Bordages to this 1/3 interest.”’11  Unsatisfied, Samson re-sent its previous letter to the Bordages on September 18, 2002.12

Meanwhile, the Bordages’ lease had been included in two gas units, the Joyce DuJay No. 1 and the Joyce DuJay “A” No. 1, and production had been obtained from the units.13  Despite the fact that Samson had the Certificate of Interest in its possession, and that no other parties contested the Bordages’ ownership or claimed an interest in the property, Samson refused to pay the Bordages royalties on production from the Joyce DuJay Units, withholding payments until December of 2007.  Samson only began payments after it had received an affidavit from the Hooks family confirming the original 1/3 transfer, and incorporating a copy of the same Certificate of Interest that Samson already had in its possession.14  In addition to the withheld royalties, Samson also did not pay any interest or late charges on the accrued royalties.15  The Bordages sued Samson for breach of contract for failure to pay royalties and failure to pay late charges, among other claims.  The trial court granted the Bordages’ motion for partial summary judgement awarding them a total of $12,955,919.00 in damages, $8,312,203.00 of which was for accrued and unpaid royalties.16

On Appeal, Samson argued that royalties on production were not “due” because the Bordages did not provide Samson with ‘“reasonable assurances that they were the proper parties to receive the royalties until October 2007”’ when Samson received the affidavit and attached Certificate of Interest.17  Samson argued that until that point,“it did not know who to pay, so the royalties were not due,” and consequently, that its December 2007 payments were “timely” and not subject to late charges,18 essentially arguing the “safe harbor” provisions offered by the Texas Suspense Statute.

The Court ultimately rejected Samson’s arguments.  To determine when payments are “due” under the lease, the Court looked to the plain language included in the lease, stating that “[h]ere, the lease provision at issue describes when the payment is required, and directly links the first royalty payment to the filing of a completion report or a test well report with the Railroad Commission rather than who is to be paid.”19  Payments were “triggered” when Samson filed its completion reports with the Railroad Commission on February 7, 2002, for the Joyce DuJay No. 1, and on October 24, 2002, for the Joyce DuJay A-1.20  “The lease expressly provides that the royalties for the first production marketed “shall be paid on or before the first day of the calendar month next following the expiration of sixty (60) days from the execution date of the completion report or potential test for the well that is filed with the Railroad Commission[.]”’21

The Court also rejected Samson’s argument that it is excused from late charges because of a title dispute.  Again, the Court looked to the plain language included in the lease.  It determined that Samson was not excused from paying late charges in the event of a title dispute because the parties had made the “safe harbor” provision of the Suspense Statute inapplicable by specifically excluding it in the lease, replacing it with provisions that did not excuse nonpayment of late charges in the event of a title dispute.22  The lease contained the following provision:

“ANYTHING HEREIN TO THE CONTRARY NOTWITHSTANDING, and in lieu of the terms and provisions contained in Sections 91.401 through 91.406 of the Texas Natural Resources Code, the parties hereto specifically agree that the following provisions shall apply to this Lease and all royalty payments made hereunder or other rights as provided in the above listed sections, and that such provisions of the Texas Natural Resources Code shall not be applicable; such parties further, by their signatures below, waive any and all rights which might be claimed or asserted under such Sections 91.401 and 91.406 of the Texas Natural Resources Code…”23

Although the court rejected Samson’s “safe harbor” argument, it reasoned that even if Samson had not waived the “safe harbor” provision by contracting around it in the lease, the circumstances surrounding the title did not rise to the level of a “bona fide title dispute” required by statute to invoke the “safe harbor” provision.24  The Court stated that,“[t]here was no evidence that the minerals had not been conveyed to the Bordages.”25  While Samson was willing to recognize equitable title in the Bordages in 2007 based on the Hooks’ affidavit with the Certificate of Interest attached, Samson knew as early as 2002 that the Bordages had equitable title based on information from the title attorney regarding the “very same Certificate of Interest” Samson later relied on in 2007.26  Additionally,“[d]espite Samson disavowing knowledge of who to pay, Samson advised the taxing authorities that the Bordages owned these interests, and the Bordages received corresponding tax statements.”27  Therefore, the Court affirmed the trial court’s judgement, holding that there was no “bona fide title dispute” to alter when royalties became due under the lease, and that Samson was responsible for late charges on past due royalties.28

At the end of the day, Samson Expl., LLC v. Bordages is a reminder that an oil and gas lease is a contract and will be interpreted as such by the courts.  Parties are free to include, or contract around, provisions as they see fit, and all terms should be chosen and analyzed with care.

1 Samson Expl., LLC v. Bordages, No. 09-20-00174-CV, 2022 Tex.App. LEXIS 206, 2022 WL 120004 at *18 (Tex.App.—Beaumont Jan. 13, 2022, pet. filed)

2 Id. at 17-18.

3 Id. at 18-19.

4 Id. at 20.

5 Id. at 2.

6 Id. at 2-3.

7 Id. at 3-4.

8 Id. at 3.

9 Id. at 3-4.

10 Id. at 4.

11 Id.

12 Id.

13 Id. at 2.

14 Id. at 4-5.

15 Id.

16 Id. at 8.

17 Id. at 16.

18 Id.

19 Id. at 18.

20 Id. at 17-18.

21 Id. at 17.

22 Id. at 19-20. 23 Id. at 16.

24 Id. at 19-20. 25 Id. at 20.

26 Id.

27 Id.

28 Id. at 21.

Emily Sheffield
Emily Sheffield

Emily's practice focuses on oil and gas title examination and due diligence for upstream energy transactions.

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