TRWD’s oil, gas royalty audits pay off

Jack Z. Smith Special Projects Reporter Fort Worth Business Press

In 2012, the Tarrant Regional Water District paid Martindale Consultants, Inc. $35,118 to determine whether the TRWD had received all the money it was due in royalties from mineral leases with Chesapeake Energy, a major operator in North Texas’ Barnett Shale natural gas play. The consulting fee was money well spent.

On Nov. 19, 2012, Martindale completed its review, finding $1,786,769 in underpayments to the water district for royalties received from January 2008 through October 2011, according to information provided the TRWD board Tuesday by Sandy Newby, the district’s director of finance. Chesapeake subsequently paid the district the full underpayment amount, Newby said. Given that result, it was hardly surprising that the TRWD board unanimously appoved Tuesday a new three-year services agreement under which Martindale is to be paid $135,000 for new royalty audits of payments made by Chesapeake. The Oklahoma City-based energy company is currently facing a barrage of lawsuits from leaseholders contending they weren’t paid the full royalties due them. Newby said, in recommending approval of the new contract with Martindale, that “a royalty audit is the best way” for the TRWD “to make certain that payments are made per our lease agreements.”

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Martindale, like Chesapeake, is based in Oklahoma City, but also has a Dallas office, according to its website,

. TRWD board member Jim Lane, an attorney, expressed concern that “thousands of little Mom and Pop leaseholders out there” also might have been shortchanged on royalty payments, but do not have the means to challenge Chesapeake. Newby also noted that the district previously paid Martindale $47,937 for a review, completed May 23, 2011, that showed the TRWD had been underpaid $82,076 by Fort Worth based XTO Energy, a unit of Irving-based oil giant Exxon Mobil, for royalty payments from February 2005 through June 2010. XTO subsequently paid the TRWD the full underpayment amount, Newby said. Newby said Martindale’s “work product was excellent” in the audits of the Chesapeake and XTO royalty payments.

The TRWD, as a major supplier of raw water to North Texas and the operator of four reservoirs, has extensive land holdings on which numerous natural gas and oil wells have been drilled. The district has received more than $300 million in royalty payments since 2003. The water board also on Tuesday discussed concerns expressed by Darlia and Robert Hobbs, a couple living near the district’s Eagle Mountain Lake reservoir, that recent small earthquakes blamed for cracked walls or ceilings in some North Texas homes might also generate seismic activity that could damage the casing of gas wells and potentially result in groundwater contaminaton. Darlia Hobbs, speaking to the board, said she believes that the earthquakes have been caused by “disposal wells,” also called injection wells, that dispose of large volumes of wastewater from natural gas and oil drilling and production activity. She noted that the TRWD has interests in wells drilled around area lakes such as Eagle Mountain and expressed concern that seismic activity could damage the Eagle Mountain Lake dam .

Board member Mary Kelleher said the district should be “pro-active” in examining such concerns. George Christie, an attorney who serves as general counsel to the water district, said the Texas Railroad Commission is the agency with primary jurisdiction over matters involving natural gas and oil wells. If the TRWD had a concern, for example, about a disposal well, it should make that known to the Railroad Commission, he said. But Kelleher said the commission is too closely allied with the oil and gas industry and thus is “the fox guarding the henhouse.” TRWD General Manager Jim Oliver, in a memo sent Feb. 17 to water board members, said “TRWD staff members have, so far, been unable to locate any research that would indicate [natural gas or oil] wellbores near our reservoirs would be negatively impacted by seismic activity or present a risk to the water supply. In addition, we were not able to find any evidence of oil/gas wells being ruptured due to earthquakes anywhere in the United States.”

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Water board president Vic Henderson, who has substantial personal oil and gas interests, suggested that further discussion be held to see how the TRWD might proceed in examining such concerns. Hobbs said she is part of a group, Concerned Citizens for Responsible Industry, that will conduct a public forum from 6 to 9 p.m. Friday, March 28 at Boswell High School at 5805 W. Bailey Boswell Road in Fort Worth to discuss concerns associated with the earthquakes, drilling and hydraulic fracturing of wells and the need to protect groundwater.