We begin with a document-drafting tip: When reserving an interest in minerals, before cutting and pasting from your old document that would be yellowed and dusty if it remained in its original papyrus format, lawyers and non-lawyers alike should consider Devon Energy Prod. Co. v. Enplat II, LLC. The Court was
Rhetorical Question: When will Texas be done with fixed/floating royalty cases such as Johnson et al v. Clifton et al?
Rhetorical Answer: When scriveners of deeds that are open to eight conceivably plausible meanings have completed their remedial scrivening courses.
How did it happen?
In 1951 Young and others conveyed to Clifton and others
Producers disappointed by the Supreme Court’s holding in Devon Energy Production v. Sheppard might have reason to feel vindicated. The question in HL Hawkins Jr., Inc. v. Capitan Energy Inc. et al. was whether producer Capitan deducted impermissible post-production costs from gross proceeds used to calculate royalties. Lessor Hawkins‘ royalty was one
The question in Brooke-Willbanks v. Flatland Mineral Fund LP, et al was which party to a Texas mineral deed would bear the burden of two previously reserved nonparticipating royalty interests.
The facts
Kay Brooke-Wilbanks owned a 45/100 mineral interest in 320 acres in Howard County, which is equivalent of an undivided 144-acre mineral interest. Her
The question in Kim R. Smith Logging Inc. v. Indigo Minerals LLC was whether a disgruntled Louisiana royalty owner sent its demand for unpaid royalties to the right party. It turns out that it did.
Mineral interest owner Cherry executed an oil and gas lease. Plaintiff Smith Logging purchased the property and Cherry retained
Co-author, Gray Reed partner Jim ReedThe common thread throughout the myriad oil and gas royalty cases decided recently by Texas courts could be “harmony”, the reading of different, seemingly conflicting, contract provisions so as to give meaning to all.
In Enervest Operating, LLC v. Mayfield and Ingham the Fourth Court of Appeal harmonized a
Co-author Brittany BlakeyRecall our recent post on Carl v. Hilcorp Energy Company from the U.S. District Court for the Southern District of Texas discussing the lessee’s royalty obligations on gas used off the premises in a market-value lease. See now, Fitzgerald v. Apache Corporation: Different judge; same district; similar facts, lease provisions
Co-author Brittany BlakeyThe question is presented again but in a different format: In Texas is a lessee allowed to deduct post-production costs (PPC’s) from the lessor’s gas royalty? In Carl v. Hilcorp, the answer was “yes” based on the language in the oil and gas lease at issue. The question was for gas
Co-author Brittany BlakeyZehentbauer Family Land, LP v. TotalEnergies E&P USA, Inc. is a story we’ve heard before: Royalty owners contend they are not getting a big enough slice of the hydrocarbon pie, which presents a question courts must answer: Where is the valuation point for royalty calculation?
Under the oil and gas leases at issue, royalties are to be paid:
“based upon the gross proceeds paid to Lessee for the gas marketed and used off the leased premises, including casinghead gas or other gaseous substance… computed at the wellhead from the sale of such gas substances so sold by Lessee.”
The midstream arrangements and the “netback method”
Chesapeake and Total sell their production at the wellhead to their respective midstream affiliates, CEMLLC and TGPNA, each of which sells the transported product to unaffiliated downstream companies. The affiliates account for the gas using the “netback” method, which “takes a weighted average of prices at which the midstream affiliates sell the oil and gas at various downstream locations and adjusts for the midstream company’s [various costs (including transportation)] to move the raw oil and gas from the wellhead to downstream resale locations.” The netback method accounts for these midstream (post-production) costs. The midstream affiliates pay this reduced amount to the producers, who use this netback price as the base for calculating the plaintiffs’ royalty payments.
Continue Reading Ohio Royalty Owners Burdened with Post-Production Costs
The question with wide-ranging implications for Louisiana operators and mineral owners in Johnson et al. v. Chesapeake Louisiana LP et al is whether unleased mineral owners in a drilling unit established by the Commissioner of Conservation must bear their proportionate share of post-production costs.
The statutory scheme
Under Louisiana’s forced pooling statutes, the Commissioner may form drilling units and appoint an operator to drill and operate wells for all owners in the unit. Unleased mineral owners (the court called them UMO’s) are exempt from the statutory 200% risk charge for drilling costs applied to non-participating lessees. The operator is required by La. R.S 30:10(A)(3) to pay a UMO who has not elected to market his share of production the tract’s pro rata share of proceeds from the sale of hydrocarbons.
The claims and defenses
Continue Reading Louisiana Unit Operators May Deduct Post-Production Costs from Unleased Mineral Owners