pjc-oil-and-gas-2022-lib

L ESSOR -L ESSEE I SSUES

PJC 303.6

PJC 303.6

Question on Location of Sale

QUESTION ______ Was the gas at issue sold [ on/off ] Paul Payne ’s leased premises? Answer “Yes” or “No.” Answer: _______________ COMMENT When to use. PJC 303.6 should be used when the location of sale is at issue under the express terms of the lease. Historically, gas royalty lease clauses value royalty on the basis of either (1) the “amount realized,” sometimes referred to as proceeds, pro vided the gas was sold at the well or on the lease; or (2) market value at the well for gas produced and sold or used off the lease. See, e.g. , Yzaguirre v. KCS Resources, Inc. , 53 S.W.3d 368 (Tex. 2001); Exxon Corp. v. Middleton , 613 S.W.2d 240 (Tex. 1981). When the dispute involves these types of clauses, one of the two bracketed options should be chosen, with the burden of proof placed on the plaintiff. The jury’s response will determine whether the “amount realized” or the “market value at the well” stan dard governs the lessee’s royalty obligation to the lessor. In all instances, however, the express language of the lease determines the lessee’s royalty obligation. See, e.g. , Sow ell v. Natural Gas Pipeline Co. of America , 789 F.2d 1151, 1155 (5th Cir. 1986) (roy alty calculated in a manner other than market value or amounts realized). Therefore, jury questions regarding the location of sale must be modified to reflect the express terms in dispute.

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