Demand Letter for Repayment

Our family has received demand letters to pay back a "negative balance" on our oil royalty accounts. There is no accounting for the amount that the oil company is requesting us to pay back or any explanation in the letters as to where the "negative balance" came from. The letters state that if the money is not sent within 30 days, the matter will be turned over to their legal department.

After calling and emailing, we were told that the "negative balance" came about, because when they pooled our well with another well, their accounting department failed to reduce the percentage that we were being paid on for our well. They discovered the error when the owners of the other property inquired as to why they were receiving no revenue from our original well.

It seems that they are reluctant to state that this whole thing resulted from their error, and they have not provided an accounting of the actual amounts paid vs. what they believe should have been paid.

We are wondering if we can ask to pay back a discounted amount, due to the fact that we paid higher taxes and made charitable contributions based on the amounts that were "overpaid." We are also wondering if we can ask for more than 30 days to pay these amounts back, as they were received over a course of 24 months. One relative is in their mid 80's and paying this large sum back all at once would be a financial burden.

If anyone has any experience with something like this, your input is appreciated.

You have not said what state the well and minerals are located in and your rights in this situation could be affected by differing law in your state. That said, you do not have to simply send a check because the company has demanded money without providing an explicit written explanation and detailed accounting. In Texas, you can tell the company to recoup any overpayment out of future royalties. Then you can ask for an annual accounting of the progression of recoupment. I was involved with a situation where the oil company complained that the recoupment would never be finished, but then started paying after 10 years. If the company sells the asset, then it may become its loss. Do not rush to make a payment because the company is referring the matter to its own legal department. And do not admit that you agree to any liability to the company without being provided a very detailed written explanation. You may find that the oil company is making more errors and overstating the overpayment. You want the opportunity to compare this to previous payments, etc. Once you have 100% of the facts, then you will be in a position to discuss either the recoupment or a discounted payment. I suggest that you have an attorney handle that negotiation so that none of the statements can be construed as an adverse admission by your family.

You might want to check your lease. When we lease, among the many lease clauses we try to get is something like this:

"Royalty owners are not liable for any over-payment of royalties by the lessee and are not required to repay them. Any error in payment will be borne by the lessee."

Good luck!


It appears that you are being asked to correct the producers mistake. If there has been a mistake and you are not being scammed, the producer can correct its mistake out of your future earnings but must continue to provide you with periodic check stubs showing the balance being withheld.

Organize all of your division orders and check stubs by well so you can maintain a cash flow and production accounting. Keep a record of the phone calls you have made along with the demand letters. If and when, you receive a registered demand letter, (I doubt that will happen) take it to your lawyer with your records and ask the lawyer to reply for you through his firm name. The legal cost should not be more than 30 minutes to one hour and your peace of mind will be worth the minor cost. Don't make payments without consulting a lawyer regardless of the amount. You are probably not at fault so don't imply that you are.

In the meantime, if you don't receive a check or check stub and know the wells are producing, send a registered letter to the president of the company producing the well stating that the well is producing and you are not getting paid. Using the operator number for your wells, send a copy to the Rail Road Commission Office that handles your county.

Gary gives good advice here. In addition, it also depends on how long the underpayment has been occurring. Most states of a Statute of Limitations, meaning they cannot reach back further than a set amount of years. For example, in Texas there is a general 4 year statute of limitations on claims of this manner. If the underpayments began 10 years ago, then in Texas they would only be able to recoup the past 4 years of underpayments.

Go talk with a lawyer before you respond to the operator.