It's been over 10 years since this case was passed down. Actually, the thrust of the case was all about one of the statute of limitations (2 years not under contract issues and 4 years if under contract issues) and the discovery rule (when did you know and when could you have know about something).
In a nutshell, HECI exploration had a lease and was producing on the lease. It had a neighboring lessee (AOP Operating) who was producing from the same source of supply. AOP produced his well in excess of the state allowable and damaged the reservoir.
HECI sued AOP and got a judgment against them. After that, they settled the case rather than appeal after appeal, ad nasuem.
More than 4 years later, HECI's royalty owners Jumped up (I would have freaked out) and said, "HEY, we want 1/6 of the settlement! It was our royalty interest that was damaged too! Unjust enrichment, unjust enrichment, unjust enrichment!"
HECI, said too bad, so sad. Neel said, "You got to be kidding me! See you in court!"
Here are the problems if you have not gotten ahead of me.
1. Royalty owners are almost never in a position to know if the reservoir was damaged. They do not have access to engineering data and if they did, they would not know what to do with it.
2. If the Lessee was going to sue, the royalty owners could have joined and had their interest protected - if their lessee would just have told them, for goodness gracious sake.
3. Royalty is paid on "amount realized from the sale..." and not "amount recovered from judgment or settlement of claim..."
Therefore, if your lessee does not own the leases on the entire reservoir and a well drilled on you can be damaged by a well off you, you need protection.
If your Operator has partners and they sue the Operator for negligence, you want to know that, too.
A good lawyer or great landman can draft language to require notice to the lessors in such a situation and allow participation in the suit and settlement awards.
For you Texas landowners, please ask your oil and gas attorney what they think about this case and how they plan on protecting your interest.