The United States Court of Appeals for the Fifth Circuit recently certified a question to the Texas Supreme Court asking what effect a free-use clause and an off-lease clause have on a royalty clause valuing royalties at the well. At issue was whether gas used as fuel off the leased premises could be deducted from royalties when the royalties were to be valued at the well under an oil and gas lease containing an off-lease clause and a free-use clause. Texas Supreme Court precedent provides that when a lease states that royalties must be valued on the gross proceeds received by lessees, free-use clauses do not allow for gas used as fuel off the leased premises to be deducted, but it is not clear on whether that same rationale would apply when royalties are valued at the well. Given that uncertainty, the Fifth Circuit could not confidently make an Erie guess on the issue and instead opted to certify the question to the Texas Supreme Court.
Continue Reading At the Well vs. Off the Lease: The Fifth Circuit Asks the Texas Supreme Court to Determine Whether Off-Lease Fuel May be Deducted from Royalties Valued at the Well