When a company leases the rights to operate wells for oil, gas, or minerals under your land, how do you know whether you’re being paid correctly for all that’s produced? This class action alleges that Devon Energy Production under-calculated and underpaid the royalty amounts due to the people from whom it leased land.
The class for this action is all persons or other entities who are mineral royalty owners in Oklahoma horizontal oil wells operated by Devon or its predecessors. Excluded are overriding royalty owners who derive their interest through the oil and gas lease.
When an oil well is drilled, water is produced as well as oil. According to the complaint, the method of separating the water and oil has been the same for roughly a century. The oil and water mixture is placed in a tank and left for a period of time, known as “residence time.” During this period, the oil and water naturally separate, and the oil settles on top of the water. The oil is then taken and put into oil tanks, a process called “gunbarreling.”
Left over in the tank is saltwater with a little oil still in it. The saltwater must be disposed of, and, according to the complaint, traditionally, the company hired to dispose of the saltwater captured and retained the remaining oil.
However, nowadays, many oil wells are horizontal wells. Horizontal wells begin as vertical wells, but at a certain depth, they change direction and bore horizontally through the ground. The complaint says that such wells “produce exceptional volumes of fluid upon completion”, that this was true of Devon’s four wells on plaintiff Robert M. Brian’s lease.
However, according to the complaint, Devon piped the oil/water mixture to its saltwater disposal wells without allowing it residence time first. Instead, the complaint says, it put the mixture directly into its wells, which have a capacity of 550,000 barrels per day, and only then allowed it residence time. The complaint alleges that Devon then took and sold this oil without paying any royalties on it, thus underpaying lessors like Brian. According to the complaint, this violates Devon’s agreement with Brian, which specifies that Brian should get “the 3/16 part of all oil produced and saved from the leased premises.”
This, the complaint says, is a breach of contract as well as a breach of Devon’s fiduciary duty to class members like Brian in properly accounting for and paying the royalties due.