In Carl v. Hillcorp Energy the Supreme Court of Texas addressed the relationship between the lessee’s use of gas off-premises under a free-use clause and the lessor’s burden to share post-production costs (PPCs) under the at-the-well gas royalty clause of an oil and gas lease. Spoiler alert: Lessee wins.
The basics
Minerals that have been
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 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 Rusty TuckerThe 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