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Nature Conservancy settles oil royalties suit in Texas Conservancy believed it had 100 percent interest, later determined others owed royalties; well had bottomhole location just a few hundred feet from tract boundary by The Associated Press
A lawsuit brought against the Nature Conservancy of Texas by a group that claimed it was cheated out of royalties from an oil and gas well on the Texas City Prairie Preserve has been settled.
In an internal memorandum distributed to trustees and senior managers of the Conservancy in the past two weeks, the organization’s president, Steve McCormick, announced the lawsuit had been settled for $10 million and characterized the circumstances that led to the suit as a regrettable mistake, the Houston Chronicle reported in its Nov. 16 editions.
McCormick said that when production began from the well, the Conservancy was firmly under the impression that “the production was coming from the part of the property where the Conservancy held a 100 percent interest in the royalty rights.”
“Regrettably, further investigation determined that our assumption was incorrect and that, in fact, the other parties should have received a portion of the revenue from this well,” McCormick wrote.
Land donated to Nature Conservancy The site of the well is a 2,200-acre tract which is home to the only remaining population of the endangered Attwater’s prairie chickens. It was donated, along with all surface and mineral rights, to the Nature Conservancy by Mobil Oil Co. in 1995.
In 1999, after extensive studies and after preparing a detailed management plan to ensure the chickens would not be hurt, the Conservancy drilled a well on the property that hit pay dirt.
The Conservancy owned 100 percent of the royalty rights on the southern half of the property. On the northern half, it shared those rights with the Russell Sage Foundation of New York and several other smaller-interest holders. While the productive well on the property was well within the southern tract, it had been sunk on an incline and the bottom was just a few hundred feet from the northern tract.
Lawyers for the Sage Foundation and the other interest holders argued in state district court in Galveston that because the reservoir of oil and gas was contiguous to both tracts, the Conservancy could not drain it and claim all the royalties, which is what they did — to the tune of about $10 million.
Conservancy tried to buy others Furthermore, the lawyers argued that in 2000, knowing the oil well could produce revenues in the tens of millions of dollars, the Conservancy, through an agent, attempted to buy the Sage Foundation’s royalty interests in the property for $26,176.
In arguments made before the court in May this year, Houston lawyer J.D. Page, representing the Sage Foundation, said the Conservancy knew that it stood to make a good deal of money out of the well and concealed this from the other parties when it offered to buy them out.
McCormick acknowledged that legal action by the Sage Foundation was more than likely precipitated by the tactics used when attempts were being made to buy the foundation’s royalty interests.
Page and other attorneys for the royalty interest holders would not comment on the settlement, which has not yet been signed by the judge, other than to say that the Sage Foundation and the Conservancy had reached an “amicable settlement” and that it was a good thing that the parties had settled their differences without having to go to trial.
The $10 million settlement, McCormick said, would not be paid with any funds that come to the organization in the form of donations.
Revenues from the oil well would account for $5.6 million of the settlement, $3.5 million will be picked up by the Conservancy’s insurance carrier, and the remaining $900,000 will be paid by the drilling company that leased the oil and gas rights.
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