For AAPL Members, the Rules of Honesty and Courtesy Always Apply
Featured in Landman, September/October 2018
Following is an actual case that came before the AAPL Ethics Committee. (Names have been changed to protect the privacy of individuals and companies.)
July 17, 2017
Attention: Ethics Committee Chairman
800 Fournier St. Fort Worth, Texas 76102
Dear Chairman, I hereby request that an ethics investigation be conducted for misconduct by AAPL member Tom Edison. I believe that the facts presented below indicate that Mr. Edison has violated the AAPL Code of Ethics and Standards of Practice.
Here are the operative facts:
Green Field Developments Inc. engaged Bush to acquire oil and gas leases in Leon County in 2017. Bush engaged Mr. Edison to acquire the leases for Green Field LLC.
On April 1, Mr. Edison acquired four leases by assignment from Roosevelt Minerals LP and agreed to pay Roosevelt $153,300 in bonuses. This was unusual because up until this point Mr. Edison had only acquired oil and gas leases directly from mineral owners — not by assignment from other lessees. Mr. Edison didn’t bring to anyone’s attention any separate relationship he had with Roosevelt Minerals at the time Bush engaged him to work on the Green Field lease acquisition project.
Roosevelt Minerals had taken the assigned leases from the mineral owners earlier that same month at a lower royalty (varied slightly but roughly 20 percent) and reserved 5 percent ORRI in the assignment to Green Field. Roosevelt Minerals paid the mineral owners a bonus that was far less than what Mr. Edison agreed to pay Roosevelt for the lease assignment.
Green Field rejected the drafts to Roosevelt Minerals for the lease assignment because it was a lease assignment instead of oil and gas leases directly negotiated with the mineral owners. Roosevelt Minerals then sued Green Field, claiming Green Field was obligated to take the leases and that Mr. Edison had approved everything (i.e., title, form, ORRIs, etc.) on Green Field’s behalf.
Mr. Edison provided an affidavit admitting he had taken the assignments without Green Field’s knowledge or approval. He also admitted that he and Roosevelt Minerals’ owner, Nick Tesla, had both prior and subsequent business dealings, including a large (25,000-acre) family-related transaction on property owned by Mr. Edison. Furthermore, Mr. Edison admitted that during negotiations he may have told Mr. Tesla how much Green Field was paying in bonuses and royalties for leases in the buy area.
Mr. Edison said he knew Roosevelt Minerals was acquiring leases and basically simultaneously selling them to Green Field for more money. When asked about whether Roosevelt Minerals offered to share any of the profit with him, he replied: “No, sir. That would be unethical.”
Mr. Edison later said he couldn’t recall if he had told Green Field that Roosevelt Minerals would retain an ORRI interest in the assignment.
I believe these facts should be investigated and that Mr. Edison has violated the AAPL Code of Ethics and Standards of Practice.
Very truly yours,
Ethics Committee Findings
Mr. Edison violated the AAPL Code of Ethics Section 2:
Competition among those engaged in the mineral and energy industries shall be kept at a high level with careful adherence to established rules of honesty and courtesy.
After due consideration of the facts, further investigation and an opportunity for hearing, Mr. Edison was suspended from AAPL membership for two years. He was also required to earn a total of six hours of ethics credit by attending either three hours of ethics education during each 12-month period or one credit/course every four months. The six hours of ethics credits/courses were required to be spaced out over the two-year suspension. Evidence of attendance and a copy of each course outline were required to be reported to AAPL.