Royalty Owners Seek Real Tort Reform

The average royalty owner in Oklahoma is a widow over 60 years old who receives monthly royalty income of less than $500 per month.
But legislation working it way toward Gov. Brad Henry’s desk would undermine the principles underlying class actions, in particular, protecting the average mineral owner and taking away the rights of these people, said David L. Smith, vice president of Mineral Management for Farmers National Co., which is the largest independent mineral management firm in the nation.
The proposed bills, HB 1602 and 1603, would require the average absentee royalty owner to review the class action lawsuit filings and to be required to “opt in” a lawsuit. Currently, members in a class action lawsuit have to do nothing to remain a part of the suit. Smith and the Coalition of Oklahoma Surface and Mineral Owners are battling what they call reform — which would be to enforce and strengthen laws already on the books.
Requiring royalty owners to opt in would force an undue burden on the vast majority of royalty owners, who live hundreds of miles away, Smith said.
“Most mineral owners will feel compelled to contact an attorney and pay the $200 to $500 for their review and recommendation,” he said. “That’s not lawsuit reform.”
Over the past several years a large number of class actions have been filed by individual mineral owners against oil companies. The legislature would be well served to focus on reducing this type of class action suit, Smith said. Royalty owner class actions have recovered more than $750 million for Oklahoma’s more than 400,000 royalty owners.
Yet, some oil companies want to reduce the number of royalty owner class actions as part of the tort reform legislation by creating barriers designed to reduce the likelihood that royalty owners will be paid properly the moneys rightfully due them. As a matter of good public policy, Smith said the way to reduce these class actions should not focus on diminishing the royalty owners’ abilities to get paid their royalties correctly and on time but focus on creating adequate incentives for the oil companies to pay the royalty owners properly and timely in the first place.
“The legislature should increase the incentives for the oil companies to pay correctly according to the base lease and require full disclosure on the production revenue check,” he said. “These two items would greatly reduce the need for class actions in Oklahoma.”
A royalty owner himself, Smith said he supports reasonable reforms to class actions, but not anything that undermines the class action lawsuit.
Even Oklahoma’s largest independent oil and gas producer — Chesapeake Energy — acknowledged in a 2006 lawsuit that “royalty owners . . . are arguably at a disadvantage and need to be protected.”
Oklahoma’s royalty owners cannot support or accept any modifications related to class actions that served to undermine the judicial underpinnings of class actions.
The Production Revenue Standards Act, or PRSA, requires producers to correctly inform the royalty owners of the facts surrounding their royalty payments. The trouble is oil companies have been allowed to ignore the PRSA, Cosmo said.
It is the lack of incentives for proper payment and transparency that is the real culprit for the necessity of class action lawsuits in Oklahoma, Cosmo said.
The PRSA needs to be modified and strengthened to encourage the proper and timely payment of royalties.

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