Exploration companies have traditionally used bank drafts to pay bonuses for oil and gas leases. Since drafts look a lot like a check, they can be misleading to mineral owners. Some mineral owners’ recent experiences with dishonored drafts have highlighted the problems with use of these financial instruments. A draft…
Last week I discussed Wagner & Brown v. Sheppard, a recent Texas Supreme Court case that involved a lease termination clause. Sheppard’s lease in that case provided that, if royalties were not paid to her within 120 days after first production, the lease would automatically terminate. That is exactly what…
A recent decision of the Texas Supreme Court, Wagner & Brown, Ltd. v. Sheppard, has caused quite a stir in oil and gas legal circles. The court was faced with a question never before answered by a Texas appellate court, what is known as a “case of first impression.” Such…
Landowners in Texas are often surprised to learn that oil companies have no obligation to compensate them for use of their lands, or to restore the lands after their use, absent a contractual requirement to do so in their oil and gas lease. The typical oil-company form lease provides only…
The last few years have seen a boom in the oil and gas exploration business in the U.S., driven by new technologies that have allowed exploitation of “unconventional” resources for gas and oil. These resources are often called “resource” plays, because the oil and gas is being produced from shale…
Last week, in Post-Production Costs in Texas-Part II, I discussed the Texas Supreme Court’s decision in Heritage Resources v. NationsBank regarding the deductibility of post-production costs from lessor’s royalties under an oil and gas lease. Justice Priscilla Owen (now a judge on the U.S. Court of Appeals for the Fifth…
Last week I introduced the term “post-production costs” and attempted to explain what those costs are and how oil companies account for such costs in calculating royalties. I said that Texas courts have construed the standard gas royalty clause to allow oil companies to deduct post-production costs from royalties. The…
Mineral owners in Texas have learned that their leases should provide for a “cost-free” royalty. By this, they generally understand that the lease should prohibit the lessee from deducting any costs from their royalty. Herein, then, are some ruminations about what lawyers and oil companies refer to as “post-production costs.”…