The law firm of Wohl & Fruchter LLP has commenced an investigation into whether XTO Energy Inc. (XTO) has systematically failed to pay amounts due to Hugoton Royalty Trust (the Trust) (NYSE:HGT) in breach of the net overriding royalty conveyances (the conveyances) that form the principal assets of the Trust.
Under the terms of the conveyances, the Trust is entitled to 80% of the net proceeds from the sale of all hydrocarbons from the underlying properties.
In the case of the Hugoton area, most of the production is sold to a subsidiary of XTO, Timberland Gathering & Processing Co. (Timberland), under the terms of a contract entered into in March 1996.
XTO recently settled a lawsuit brought by royalty owners of wells operated by XTO, Fankhouser v. XTO Energy, Inc., Case No. CIV-07-798-L, in the United States District Court for the Western District of Oklahoma. One of the Court’s findings in the Fankhouser case was that Timberland was not making any payment for natural gas liquids (NGLs) extracted from the gas stream under the March 1996 contract. By contrast, the Court found that in contracts XTO entered into at arm’s length with third parties, “XTO specifically negotiated for payment to it of the value of the NGLs in addition to the value of the residue gas.”Under the terms of the settlement in the Fankhouser case, XTO agreed to begin paying royalty owners for the net value of NGLs in the gas stream from their properties. Wohl & Fruchter’s investigation concerns whether the exclusion of NGLs under XTO’s related-party contract with its subsidiary, Timberland, has also resulted in the failure to compensate the Trust for the value of the NGLs, in violation of the conveyances. Additional information is available at http://www.wohlfruchter.com/cases/hgt. Persons with relevant information, and unitholders of the Trust with questions about this investigation, are invited to contact our Firm.