Gas Royalty Ruling Follows Texas Contract Scrutiny Trend
Energy attorney Brooke Sizer published an article in Law360 analyzing a recent Texas Supreme Court decision related to postproductions costs in royalty calculations. Postproduction costs typically refer to the costs incurred by an operator when moving gas from the wellhead to the sales point; examples include costs for treating, processing and transporting gas. In Nettye Engler Energy LP v. BlueStone Natural Resources II LLC, the issue before the court was whether a nonparticipating royalty interest bore its share of postproduction costs. The court's decision came down to a single word — "pipeline" — and confirmed a trend in royalty litigation: Courts will carefully examine each word in a royalty instrument when deciding the parties' intent for the allocation of postproduction costs. Ms. Sizer's article breaks down the case case and explains its implications for the oil and gas industry.