87R6894 DRS-F

By: Craddick H.B. No. 4218

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. DEFINITION. In this chapter, "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 and exemplary 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 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, 2021.