Most bills filed in each legislative session fail. For the most part we are thankful for that. But today we summarize a few that survived while you weren’t paying attention. As usual, there are winners, losers, and rainouts.

HB 2730 beefs up the “Landowners’ Bill of Rights” in eminent domain negotiations and proceedings. It amends

Co-author Rusty Tucker

The Supreme Court of Texas has ruled that oil and gas leases under consideration in BlueStone Natural Resources II, LLC v. Walker Murray Randle, et al. did not permit deduction of postproduction costs from sales proceeds before royalties were computed, and a “free use” clause did not authorize the lessee to consume leasehold gas in off-lease operations without compensating the lessors.

The takeaway …

… at least that’s what they ruled in this cicumstance. The Court reiterated that regardless of a recitation here or an observation over yonder, it will not adjudicate the supremacy of one contract clause over another or one arbitrary rule of construction over another. Rather, it will construe each contract according to its terms.

The royalty clause
Continue Reading Texas Supreme Court Weighs in on Post-Production Costs

Co-author Rusty Tucker

BlueStone Nat. Res. II, LLC v. Nettye Engler Energy, LP is another Texas case deciding whether language creating a nonparticipating royalty interest prohibited deduction of post-production costs. (Spoiler alert: it didn’t. Read on to learn why.)

The Deed

By a 1986 Deed Engler’s predecessors conveyed land to BlueStone’s predecessor. Grantor reserved an undivided 1/8th NPRI in the minerals and was entitled to 1/8th of gross production, “ … to be delivered to Grantor’s credit, free of cost in the pipe line, if any, otherwise free of cost at the mouth of the well or mine … .” (emphasis ours).
Continue Reading Texas NPRI Burdened with Post-Production Costs

Co-author Rusty Tucker

Devon Energy Prod. Co., et al. v. Sheppard, et al is your kind of case if you are in search of:

  • A roadmap for slicing and dicing royalty calculations in myriad ways,
  • Pretty good summaries of the Supreme Court’s notable decisions in Heritage Resources v. NationsBank, Judice v. Mewborne Oil, Chesapeake Exploration v. Hyder and Burlington Resources v. Texas Crude. (pp 12-19)
  • A description of the gas fractionation process.
  • For you scriveners: Reference to the Supreme Court’s lament for “the considerable time, money and heartache” expended due to the use of “industry jargon, outdated legalese, or tenuous assumptions about how judges will interpret industry jargon or outdated legalese”.


Continue Reading When is a “Gross Proceeds” Royalty not Paid on Gross Proceeds?

Co-author Paul Yale

What’s good for the goose is not always good for the gander, at least in some places. It appears that the North Dakota Supreme Court has adopted the minority “ Marketable Product Rule” in connection with a 1979 North Dakota state oil and gas lease. We say “it appears” because not so long ago, in its 2009 decision in Bice v. Petro-Hunt, LLC, the Court held that North Dakota was an “at the well” state, like Texas and the majority of other oil producing states. This latest decision is Newfield Exploration Company, et al v. State of North Dakota et al.

The difference between the “Marketable Product Rule” and the “at the well” rule has to do with the deductibility of post-production costs of transporting, compressing, treating and processing from royalty payments. In an “at the well” state such costs are charged proportionately against the royalty owner. In a “Marketable Product” state they are not.
Continue Reading North Dakota: A Different Rule for Post-Production Costs In a State Lease.

Did the lessor’s deposit of royalty checks for production from a pooled unit that she contends was improper ratify the improper pooling? In Strickhausen v. Petrohawk et al, a jury will have to sort out the answer. Her case will be aided by exculpatory language in her oil and gas lease and her complaints from the beginning that her lease was improperly pooled.

The “Future Documents” clause and other facts

Strickhausen’s lease on 50 percent of the minerals on land in LaSalle County, Texas, prohibited pooling without her express written consent. An unusual “Future Documents” provision said (to paraphrase): If the lessee requires her to execute any document, such as a division order, such execution does not constitute waiver, acceptance, ratification, reviver, or adoption or waiver of any claim or demand, unless the document expressly states that as its purpose.
Continue Reading Lessor, Should You Cash That Royalty Check?

Welcome to today’s grab-bag of unrelated topics.

The climate avengers are clever in the way they demonize the industry. They give zero credit for technological advancement. Truth is, the industry’s use of technology is constantly evolving, resulting in improved performance and, not secondarily, lessened environmental impact from operations.

One example: Scientists from The Ohio State University are working on a project to convert fossil fuels and biomass into useful products, including electricity, without emitting carbon dioxide into the atmosphere. The papers were published in the journal Energy & Environmental Science.
Continue Reading Oil Field Technology … and a Texas Bill Aimed at Royalty Owners

Co-author Ethan Wood

In Johnson et al vs. Chesapeake et al, unit operator Chesapeake deducted post-production costs (gathering, compression, treatment, processing, transportation and dehydration) from non-operating, unleased mineral  owners’ share of production proceeds. The UMO’s (so-called by the court) sued. The federal district court concluded that La. R.S. 30:10(A)(3) governs the dispute, and post-production costs could not be recovered from the UMO’s share of production proceeds.
Continue Reading Louisiana Operator Can’t Deduct Post-Production Costs from Unleased Mineral Owners

Co-authors Ethan Wood and Chance Decker

Less than a year ago, we discussed the “Unanswered Questions” left in the wake of Devon Energy Prod. Co., LP v. Apache Corp. (which did answer the question, “Who is a ‘Payor’ Under the Texas Natural Resources Code?”). We asked:

“But if the non-participating working interest owner is not paying royalties—what is keeping the lease alive? Absent pooling of the leases or a JOA, the non-participating working interest owner cannot rely on the operator’s actions to perpetuate its leases. A sly operator can obtain top leases from the non-participating working interest lessors and run out the clock on those leases …”

In Cimarex Energy Co. v. Anadarko Petroleum Corp., the operator did just that …
Continue Reading Operator Runs Out the Clock on Co-Tenant