Royalty disputes often fracture families
Mary Moczygemba was 74 years old and running out of money to run her farm.
It was 2000, years before anyone in South Texas had heard of the Eagle Ford Shale, the 400-mile-long oil field concealed beneath thousands of feet of rock. Moczygemba signed deeds transferring 400 acres in Wilson and Karnes counties to two of her sons for below-market sums.
There was no mention of minerals, typical of the time.
A decade later, though, oil fever overtook a region usually obsessed with high school football, drought cycles and hunting. Moczygemba realized that she had sold her minerals along with the surface of the family farm, according to court documents.
A family meeting with her other seven children followed, and in 2012 she sued the two sons she sold the land to for breach of fiduciary duty because of “their moral, domestic and personal relationship of trust and confidence.”
“Nobody knew if those minerals were ever going to have any value?” an attorney asked Mary Moczygemba in a deposition.
“After they started leasing, they should have come, ‘Well, Mom, look. We’re going to be leasing. Let’s just share it,’ ” she said. “Wouldn’t that have been nice?”
But what would be nice and what holds up in court are different sometimes.
More than 1 billion barrels of oil have flowed from the Eagle Ford Shale, and South Texas courthouses have a tangle of lawsuits as people battle over who owns what, what percentage of minerals they really conveyed with a land sale and — bedeviling even
to oil and gas attorneys — the meaning of fractions in documents signed 60 years ago.
At stake: millions of dollars and family relationships strained by the wealth of the most profitable U.S. shale field.
“We are on the forefront of it,” said San Antonio attorney Trace Burton. “So much of this has been mesquite and prickly pear and white-tailed deer until now.” Disputes elsewhere settled
Other parts of Texas with outsized oil fields have walked this path. Attorneys say there’s far less messiness about mineral ownership in West Texas and East Texas, where people long ago sued each other over 20th century oil fortunes in the massive Permian Basin and East Texas oil fields, and courts settled disputes.
But no one paid much attention to oil and gas in South Texas until recently.
“Minerals weren’t worth a whole lot for a long period of the time,” said Karnes City attorney Clinton Butler. “People just weren’t thinking of it. The thing they were thinking of was the land they were buying and selling.”
Many cases at their core deal with regret and the heartbreak of what could have been. If anyone suspected another Texas oil boom would have happened, they definitely would not have sold their minerals — not even to a family member.
In Moczygemba’s case, each son paid $40,000 for 200 acres. It was a sweetheart deal, but Moczygemba wanted to sell to her sons below market price, according to court documents.
Her two sons filed a motion for summary judgment to have her suit thrown out, arguing that they didn’t have a fiduciary duty to their mother and the statute of limitations — usually four years — had run.
The trial court agreed that it was too late, barring Moczygemba’s claims.
She appealed, but the appeals court in San Antonio in February also ruled against her and in favor of her two sons, Tommy and Harry. “While the deeds are evidence that Mary’s mineral interests passed to her sons, they are not evidence that the mineral interests were wrongfully transferred to her sons,” the opinion says.
Burton said South Texas courts are full of fights like this, but Texas law is unforgiving when it comes to wanting to re-trade a deal, absent proof of fraud or a mutual mistake.
“Some people just can’t sleep at night,” said Burton. “Why it hits so close to home is that for a lot of people, it’s their longtime family ranch. The family aspect tends to resurrect old rifts between family members. You pour millions of dollars on top of those old rifts and they don’t necessarily heal. It exacerbates it.”
The first Eagle Ford well struck in late 2008, and soon after, the family feuds started. But often, it’s oil companies that unearth problems.
Companies get a drill site title opinion before moving a rig onto a ranch — a final legal review identifying everyone with an interest in the minerals. In case of confusion, the company throws its hands up and steps back. It holds the royalty payments in a suspense account and lets potential owners fight in court.
“They start the gasoline fire and then back away,” Butler said. Leases create issues
Many South Texas disputes stem from the old “Producers 88,” the standard lease used in earlier days of Texas oil.
It stipulated that the mineral owner would receive a 1/8th royalty. That is, for every 100 barrels of oil produced, the money from 12.5 barrels would go to the mineral owner.
The lease was so common that the “1/8th royalty” language got borrowed from the oil and gas lease and inserted into real estate deeds.
And it can create a modernday legal mess if someone sold land but reserved part of the royalty.
“If you’ve got about two days we can sit down and go through double fractions,” Butler said. “That question is constantly before the court. It’s hard to pin down what’s what.”
The fight is this: If the sellers reserved half of the 1/8 royalty, what does it mean? Did they reserve one-half of one-eighth — which equals a fixed 1/16th of the minerals?
Or did they mean to reserve a floating interest in one-half of whatever future royalty is paid?
Many judges only consider the “four corners” of the deed. If the document says half of 1/8th royalty, then it means 1/16th.
Other judges agree with the “estate misconception theory” — the idea that parties from a certain time period mistakenly assumed that 1/8th is all that would ever be paid on a royalty. A 20 to 25 percent royalty is common in modern leases.
“You can find cases that go both ways,” Butler said. “There’s a lot of room for argument on either side.”