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It is well established case law in Texas that the Lessor has no right to audit the books of the Operator without that right being expressly granted in an oil and gas lease.

Does your lease provide that right?

If not, you might want to consider the following language:

"5.11 Without limiting Lessor's rights or Lessee's obligations under any other provision of this Lease, commencing on the completion date of the first well drilled on the Leased Premises, or lands pooled therewith, as a producing well, no more often than once a year during and until eighteen (18) months after the expiration of this lease, Lessor shall have the right to have an audit of the books, accounts, contracts, and records, and both interpretive and non-interpretive data of Lessee pertaining to the development, production, saving, transportation, sale, and marketing of the oil, gas, and sulphur produced from or attributable to the Leased Premises conducted, including ad valorum and production taxes. 

If the exceptions or deficiencies in royalty payments by Lessee as revealed by the audit (the “exceptions”) are, either by agreement of Lessor and Lessee or by a final, non-appealable judgment binding on the parties, determined to be more than the cost and expense of such audit to Lessor, then Lessee shall reimburse Lessor for the cost of such audit within thirty (30) days after the earlier of (i) the date of the agreement of the parties respecting the amount or amounts of the exceptions or (ii) the date upon which a judgment binding on the parties and determining the amount or amounts of the exceptions becomes final and non-appealable. 

If the audit exceptions are, either by agreement of Lessor and Lessee or by a final, non-appealable judgment binding on the parties, determined to be less than the cost and expense of the audit to Lessor, such cost and expense shall be borne by Lessor."

Negotiating oil and gas leases is more than asking how much is the bonus and how much is the royalty. Don't put yourself in a troubling situation when it could have been handled at the time of lease execution. Get some representation and protect your interests.

Best,

Buddy Cotten

Mineral Manager

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Comment by Sue Vetters on December 4, 2017 at 8:42am

Hello all...my first post. This comment by Buddy Cotton is enlightening. It is great to learn new information and have access to others with my questions.


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