Shell Oil Co. v. Ross: Texas Supreme Court Opinion on the Statute of Limitations Favors Operators over Royalty Owners

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In December 2011, the Texas Supreme Court issued its latest decision on the statute of limitations and fraudulent concealment exception. In the case, Shell entered into a mineral lease with the Ross family in 1961. Under the lease, Shell agreed to pay the Rosses the standard one-eighth royalty realized from the sale of any gas produced from the land.

Shell did not consistently calculate the 1/8 interest based on the third-party gas sale price. First, from 1988 to 1994, it used a weighted average to calculate the sales price, by averaging third-party sales of the plaintiffs’ gas along with other parties from the same unit. Shell contended this was a permissible calculation, but plaintiffs disagreed. Second, and more critically, from 1994 to 1997, Shell did not pay the royalty based on any sales price. Instead, Shell acknowledged that it used an “arbitrary” price by mistake.

The Ross family sued over these discrepancies in 2002, which was outside the Texas four-year statute of limitations for a contract claim.

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