TXO Production Corp. v. First Nat. Bank of Russellville, 85-108

• Decision Date: 10 March 1986
• Docket Number: No. 85-108,85-108
• Citation: 705 S.W.2d 423,288 Ark. 338
• Parties: TXO PRODUCTION CORPORATION, Appellant, v. FIRST NATIONAL BANK OF RUSSELLVILLE, Appellee.
• Court: Arkansas Supreme Court

Page 423

705 S.W.2d 423

288 Ark. 338

TXO PRODUCTION CORPORATION, Appellant, v. FIRST NATIONAL BANK OF RUSSELLVILLE, Appellee.

No. 85-108.

Supreme Court of Arkansas.

March 10, 1986.

RONALD A. MAY, Special Justice.

This is a suit by First National Bank of Russellville to recover royalties, penalties and attorney's fees under an oil and gas lease given to TXO Production Corporation. Shortly after suit was filed, TXO tendered royalties, and this action continued only as one for penalties and attorney's fees. The Trial Court found for the bank and TXO appealed. The case was transferred to this Court under Rule 29(1)(c) and (n). We are affirming the Trial Court.

The penalties were assessed under Act 269 of 1981 (Ark.Stat.Ann. § 53-525), which reads as follows:

"A. The proceeds derived from the sale of oil or gas production from any oil or gas well shall be paid to persons legally entitled thereto, commencing no later than six (6) months after the date of first sale, and thereafter no later than sixty (60) days after the end of the calendar month within which subsequent production is sold. Such payment is to be made to persons entitled thereto by the first purchasers of such production. Provided, such purchasers may remit to the persons entitled to such proceeds from production semi-annually for the aggregate of six (6) months' accumulation of monthly proceeds of amounts less than Fifteen Dollars ($15.00). As used in this Act, first purchaser shall mean the first commercial purchaser after completion of the well and shall not include purchasers of oil or gas during initial testing prior to completion. Further provided, that any delay in determining the persons legally entitled to an interest in such proceeds from production caused by unmarketable title to such interest shall not affect payments to persons whose title is marketable. Provided, however, that in those instances where such proceeds cannot be paid because the title thereto is not marketable, the purchasers of such production shall cause all proceeds due such interest to earn interest at the rate of eight percent (8%) per annum, until such time as the title to such interest has been perfected. Marketability of title shall be determined in accordance with the then current legally recognized real property law governing titles to oil and gas interest. The first purchaser shall be exempt from the provisions of this subsection and the owner of the right to drill and to produce under an oil and gas lease or force pooling order shall be substituted for the first purchaser therein where the owner and purchaser have entered into arrangements where the proceeds are paid by the purchaser to the owner who assumes the responsibility of paying the proceeds to persons legally entitled thereto." [The assessment of the penalty is in a separate subsection.]

The oil and gas lease itself is not in evidence. However it is undisputed that gas production on the well in question started in early 1982. A portion of the gas was sold to Columbia Gas Transmission Service and other portions were sold to Arkansas Louisiana Gas Transmission Corporation. (ARKLA). It is undisputed that TXO assumed the obligation to pay royalties on gas production to the bank.

Arkla began taking deliveries of gas...