Fake Mineral Leases Thwarted by the Texas Legislature

Gray Reed
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The 2019 Texas legislature enacted a new Property Code Section 5.152 to protect mineral and royalty owners from a certain species of fraudulent transactions perpetrated on trusting and/or naïve and/or out of state mineral owners. Ethan Wood and I wrote about the scam when it made its way into the courthouse.

How the scam worked

The grifter, fronting for a company with a name similar to a reputable operator, would approach the owner with an oil and gas “lease” of minerals or royalty that were already subject to an existing lease. Except that the lease was actually the sale of the mineral or royalty interest at a bargain price. The scammers would then invoke arbitration provisions they had written into the conveyance, and relying on the confidential nature of the arbitration process, would stifle publicity of the inevitable dispute.

Why were the grifters successful?

Because the aforesaid trusting and/or naïve and/or out-of-state mineral owners didn’t read what they sign or don’t seek competent advise before signing. This is an age-old phenomenon and will always be with us.

The fix

That scourge was addressed by new Section 5.152 which provides, in summary,

  • A conveyance of a mineral or royalty interest,
  • by an instrument that is presented by a person acquiring the interest,
  • that is titled as an oil and gas lease or royalty lease or similar words,
  • but has the effect of conveying permanently or for a term all of the owners mineral interest in land or a royalty interest in production covered by existing oil and gas lease,
  • must include on the first page of the instrument and on each subsequent page, in the equivalent of 14 point font, a conspicuous statement saying substantially these words in substantially this form “THIS IS NOT AN OIL AND GAS LEASE. YOU ARE SELLING ALL OR A PORTION OF YOU MINERAL OR ROYALTY INTERESTS IN [description of the property]”.
  • The law doesn’t apply to an instrument that grants an actual oil and gas lease or conveys a mineral royalty interest for a term and provides that the interest vests in possession after the expiration or termination of all or a portion of the interest conveyed by an existing oil and gas lease in effect at the time of the execution of the instrument (in short, a top lease).
  • A conveyance without this language is void.
  • A person cheated by the absence of this disclosure may recover royalties, interest, court costs, and attorney fees, in addition to any other remedies they may have.
  • The amendment applies to agreements entered into on or after September 1, 2019, the effective date of the Act.

Musical interlude

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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