By: Hughes S.B. No. 501
(In the Senate - Filed January 19, 2023; February 17, 2023,
read first time and referred to Committee on Natural Resources &
Economic Development; April 4, 2023, reported favorably by the
following vote: Yeas 8, Nays 0; April 4, 2023, sent to printer.)
Click here to see the committee vote
A BILL TO BE ENTITLED
AN ACT
relating to a cause of action for the bad faith washout of an
overriding royalty interest in an oil and gas lease.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Title 4, Property Code, is amended by adding
Chapter 31 to read as follows:
CHAPTER 31. BAD FAITH WASHOUT OF OVERRIDING ROYALTY INTEREST IN OIL
AND GAS LEASE
Sec. 31.001. DEFINITIONS. In this chapter:
(1) "Bad faith" means the conscious taking of action
for the purpose of washing out all or part of an overriding royalty
interest.
(2) "Washout" means the elimination or reduction of an
overriding royalty interest in an oil and gas lease by the
forfeiture or surrender of the oil and gas lease by a lessee or the
lessee's successors or assigns and the subsequent reacquisition of
a lease, or all or part of the mineral estate associated with the
lease, by the lessee or the lessee's successors, assigns,
contractors, or subsidiaries on all or part of the same land, free
of the overriding royalty interest.
Sec. 31.002. CAUSE OF ACTION FOR BAD FAITH WASHOUT. A
person may bring a cause of action for a bad faith washout of the
person's overriding royalty interest in an oil and gas lease. The
person is entitled to a remedy under this chapter if the person
proves by a preponderance of the evidence that:
(1) the person owned or had a legal right to the
overriding royalty interest;
(2) the defendant had control over the oil and gas
lease burdened by the overriding royalty interest;
(3) the defendant caused a washout of the person's
overriding royalty interest; and
(4) the defendant acted in bad faith by knowingly or
intentionally causing the washout.
Sec. 31.003. VENUE. An owner of an overriding royalty
interest in an oil and gas lease may bring an action under this
chapter in a district court of a county in which any part of the
property subject to the oil and gas lease is located.
Sec. 31.004. REMEDIES; COSTS AND FEES. (a) An owner of an
overriding royalty interest who prevails in an action under this
chapter may recover:
(1) actual damages;
(2) enforcement of a constructive trust on the oil and
gas lease or mineral estate acquired to accomplish the washout of
the overriding royalty interest; and
(3) court costs and attorney's fees.
(b) The remedies provided by this chapter are cumulative of
other remedies provided by common law or statute.
Sec. 31.005. LIMITATION ON FILING ACTION. A person must
bring an action under this chapter not later than the second
anniversary of the date the person obtained actual knowledge that
the washout occurred.
SECTION 2. Chapter 31, Property Code, as added by this Act,
applies only to a washout that occurs on or after the effective date
of this Act. A washout that occurred before that date is governed
by the law in effect immediately before the effective date of this
Act, and that law is continued in effect for that purpose.
SECTION 3. This Act takes effect September 1, 2023.
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