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Energy & the Law

Tag Archives: market value lease

Royalty Clauses For the Lessor – This Battle is Over

Posted in Lease Disputes, Royalty Disputes

What is your guiding principle when writing agreements? “The more the words the less the meaning, and how does that profit anyone?” Ecclesiastes 6:11. or “The beginning of wisdom is the definition of terms.” Socrates The Legal Issue A lease grants “a perpetual, cost-free (except only its portion of production taxes) overriding royalty of five percent …… Continue Reading

Deduction of Post-Production Costs from Gas Royalties – Another Lesson

Posted in Lease Disputes, Royalty Disputes

Consider this while celebrating the resurrection of Big Tex: When a lease prohibits post-production cost deductions, can a lessee deduct those costs from a lessor’s royalty? Yes, says Potts v. Chesapeake Exploration, L.L.C. In a market value lease, where lessee sells the gas “at the well” and the court applies the netback approach to calculating market value, the lessee is entitled… Continue Reading

Lessor is Not Entitled to Royalty on Hedging Profits

Posted in Lease Disputes

A Louisiana lessee does not owe its lessor royalties based on hedging profits, said a federal district court in Cimarex Energy Co. v. Chastant. Cimarex, the lessee, hedged its gas contracts and didn’t pay its lessor, Chastant, earnings from the hedge. As the court described it, hedging involves buying and selling financial positions as a strategy… Continue Reading

Underpaid Royalty Case Resolved in Favor of Lessee

Posted in Royalty Disputes

One impediment to the correct resolution of lessors’ claims for unpaid royalties is the complexity of the contractual arrangements between producers and purchasers of production. Occidental Permian, Ltd. v. French et al offers a good example. It is also a refresher on the basic rules of royalty calculation in Texas and, for royalty owners in suits for unpaid… Continue Reading