It is not uncommon for royalty disputes between mineral lessors and operators to increase as oil and natural gas prices decrease. Before mineral lessors go running to the courthouse in Colorado, however, and before operators respond to a lawsuit, both sides should consider the appropriate forum for the dispute. In a recent ruling dismissing a complaint at the outset of litigation, the District Court in Garfield County recognized the role given by the legislature to the Colorado Oil and Gas Conservation Commission (COGCC) to adjudicate certain royalty claims.
In Jolly Family v. Bill Barrett Corporation, the mineral lessors filed a complaint alleging a breach of the lease agreement and demanding an accounting on damages. The lessors alleged that Bill Barrett Corporation (BBC) failed to properly calculate royalties, in part, by failing to fully account for the proceeds from the sale of the gas and the products extracted therefrom; excluding and undervaluing the proceeds received from the sale of NGLs; and excluding volumes of natural gas that had been produced and sold or consumed. BBC responded by filing a motion to dismiss due to the plaintiff’s failure to exhaust administrative remedies before the COGCC, which has the authority to adjudicate disputes over royalty amounts due a lessor by an operator. The Court agreed with BBC and dismissed the complaint. Continue Reading