I have seen several examples of oil and gas royalty owners having to repay past errors because of accounting errors. These errors were allegedly often discovered years later. In at least one instance, the operator acquired a company only to later find accounting errors that led to an overpayment.
liability fell to the royalty owners.
Is that always the case? Why isn’t the acquiring company responsible for haphazard due diligence?
Are there examples where an owner underpayment was discovered and corrected by the operator?
PPA (prior period adjustments) are common and frequently go back for several years. They are due to later determination that the volumes or sales were either over-reported or under-reported on the original checks. Or when the DOI is corrected. Usually the adjustments are small. You need to look at both the negative reversal and the positive adjustment for each month and for each product to see the net for the month. No one complains when the net result is positive.
In 2025 over a period of 4 months, covering the past 5 years, I received substantial $’s in what looked like their determination a net amount of underpayments. Who knows, one of these days they might take it back.
The negative adjustment was significant relative to the royalty payment amounts. I don’t contest that a PPA is possible but “just trust us” doesn’t seem like the level of transparency that should be required. I guess I will be pleasantly surprised if these accounting adjustments ever work in my favor.
This will never be a term that you can negotiate. And the lessee would want an offsetting clause that not underpayments will be adjusted, which would allow a free-for-all of underpayments. For checks to be paid timely, the accounting department uses the best data available. Sometimes there are later adjustments due to correction of volumes or contractual pricing or expenses. I do think that this is occurring more frequently, perhaps in part due to the audits of third-party accounting (not in-house) by so many companies and by off-shore accounting in other countries where there is not a real understanding of oil and gas (data is just meaningless units to be applied).
When a mineral owner is faced with a demand for repayment due to a company’s accounting error, it highlights a significant power imbalance. The operator essentially has “self-help” tools that the mineral owner does not.
To address the post directly: it is not always the case that the owner is liable, but the deck is often stacked in the operator’s favor due to the language in common industry documents.
1. The “Due Diligence” Double Standard
In most commercial acquisitions, a buyer is responsible for their own due diligence. However, oil and gas companies rely on the legal doctrine of Equitable Recoupment.
The “Not Your Money” Defense: Operators argue that if an error led to an overpayment, the royalty owner was never legally entitled to that money under the lease. Therefore, the operator’s failure to find the error during an acquisition doesn’t give the owner a right to keep the “windfall.”
Successor Liability: The acquiring company inherits both the unpaid royalties (liabilities) and the right to recover overpayments (assets) of the previous operator.
2. The ACH Withdrawal Risk
The post asks about repayment. If an owner signed a standard ACH (Direct Deposit) form, they might have granted the operator a “back door” to their bank account.
Contractual “Pull” Authority: Most ACH forms include a clause allowing the company to “initiate debit entries” to correct errors. While banking rules (NACHA) generally limit simple “reversals” to a 5-day window, a signed ACH agreement is a private contract that may allow the operator to bypass that window and pull funds directly from your account months later.
The Solution: Many mineral owners strike out any “debit” or “withdrawal” language before signing an ACH form, forcing the operator to use other methods (like deductions from future checks) if an error occurs.
3. The Role of Division Orders
The Division Order (DO) is often the legal instrument used to justify these clawbacks.
Indemnity Clauses: Most DOs include language where the owner “warrants” their interest and agrees to refund the payor for any amounts they are not entitled to.
Revocability: Most DOs are revocable. If an operator is attempting a massive clawback for a years-old error, an owner can sometimes revoke the DO to stop the immediate recoupment while the “error” is being investigated.
4. When the Owner Wins
There are defenses that can stop a company from collecting on an old error:
The Voluntary Payment Rule: In some jurisdictions, if a company makes a payment with full knowledge of the facts (or the means to know them) and it wasn’t a clerical “slip,” they may be barred from asking for it back.
Statute of Limitations: There are time limits (often 2 to 4 years, depending on the region) for an operator to sue an owner for a cash refund. However, they can often still “recoup” by withholding future royalties indefinitely, as recoupment is often viewed as a defense rather than a new claim.
Underpayment Corrections: Operators do find and correct underpayments, often through internal title audits or “Title Curative” work. When this happens, they are typically required to pay the back-royalties plus statutory interest.
Summary for the Forum: The best protection is at the start. Don’t sign an ACH form that allows withdrawals, and verify the decimal on every Division Order. If an operator demands a refund for an error from years ago, don’t assume you have to pay it back immediately—make them prove it was a “mistake of fact” and not a “mistake of law.”
Notice:Informational only. No attorney-client relationship is formed by this post. I am an Oklahoma-licensed attorney, but this is not legal advice. Do not share confidential facts in this public space.