On May 17, 2024, the Texas Supreme Court held that when a lease requires royalties to be paid on all gas sold or used off the premises, but the valuation point for said royalties is “at the well,” gas used off premises as fuel is deductible as a matter of law.
Continue Reading Texas Supreme Court Determines That Off-Lease Fuel is Deductible from Royalties Valued at the Well
Sam Allen
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
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
One Man’s Waste is Another Man’s Treasure: Texas Appellate Court Holds that Produced Water Belongs to Mineral Owners
Recent technology has made produced water—a byproduct of fracing that was traditionally considered waste—a valuable product. However, no legal guidance existed on whether produced water was owned by mineral owners or surface owners. The Texas Legislature resolved some of that uncertainty by passing Texas Natural Resources Code § 122.002 on September 1, 2019, which generally grants title to produced water to whoever takes possession of it for the purpose of treating it for subsequent beneficial use. However, this statute only governs parties to instruments executed after September 1, 2019, which left parties to instruments executed prior to that date uncertain on whether they owned the produced water extracted from their property. The El Paso Court of Appeals undertook to resolve this conflict in Cactus Water Services, LLC v. COG Operating, LLC, and on July 28, 2023, it held that when instruments convey “oil and gas” or “oil, gas and hydrocarbons” to mineral owners without specifically reserving title to produced water or oil and gas waste, mineral owners have the sole right to produced water extracted from their property.
Continue Reading One Man’s Waste is Another Man’s Treasure: Texas Appellate Court Holds that Produced Water Belongs to Mineral Owners
Texas Supreme Court Holds That Production Payments Were Properly Withheld as a Matter of Law When a Future Event Could Have Affected Distribution of Those Payments
In Freeport-McMoRan Oil & Gas LLC v. 1776 Energy Partners, LLC, — S.W.3d —, No. 22-0095, 2023 WL 3556695 (Tex. 2023), the Texas Supreme Court held that, as a matter of law, the operator of a joint operating agreement, Ovintiv, did not owe interest on production payments owed to the non-operator, 1776 Energy, that…
Force Majeure Clause Fails to Protect Oil and Gas Lessee From Mistakenly-Scheduled Deadline
In Point Energy Partners Permian, LLC v. MRC Permian Company, — S.W.3d —, No. 21-0461, 2023 WL 3028100 (Tex. 2023), the Texas Supreme Court held that the lessee could not invoke a force majeure clause to save its oil and gas leases when it inadvertently scheduled its operations to begin after the requisite deadline.…
Texas Supreme Court Holds that Add-Back Provision in Oil and Gas Lease Required Royalties to be Paid on Prices in Excess of the Producers’ Gross Proceeds
The Texas Supreme Court recently released its opinion in Devon Energy Production Company, L.P. v. Sheppard, — S.W.3d —, No. 20-0904, 2023 WL 2438927 (Tex. 2023), in which it held that lessees owed royalties in excess of their gross proceeds, specifically “adding back” costs incurred by third-party buyers that were enumerated in the sales…
Texas Supreme Court Holds that References to “One-Eighth” in Old Oil and Gas Conveyances Presumptively Refer to the Entire Mineral Estate
The Texas Supreme Court recently released its opinion in Van Dyke v. Navigators Grp., No. 21-0146, 2023 WL 2053175 (Tex. Feb. 17, 2023), in which it re-affirmed the axiomatic principle that a text retains the same meaning in the present day as when it was drafted. In the context of antiquated oil and gas…