pjc-oil-and-gas-2022-lib

PJC 303.7

L ESSOR -L ESSEE I SSUES

PJC 303.7

Question and Instruction on Implied Duty to Reasonably Market Production (Proceeds/Amount Realized Royalty Provision)

QUESTION ______ Did Larry Lessee fail to reasonably market the [ oil/gas ] produced from Paul Payne ’s lease? “Reasonably market” means to market the production with due diligence and to obtain the best price reasonably possible as would a reasonably prudent operator acting with ordinary diligence under the same or similar circum stances, having due regard for the interests of both Larry Lessee and Paul Payne . Answer “Yes” or “No.” Answer: _______________ COMMENT When to use. PJC 303.7 should be used when the issue is whether the lessee acted prudently in marketing the production. The duty to market production by obtain ing the best price reasonably possible is included within the implied covenant of man agement and administration of the leasehold estate. Cabot Corp. v. Brown , 754 S.W.2d 104, 106 (Tex. 1987) (citing Richard W. Hemingway, Law of Oil and Gas § 8.9(C) (2d ed. 1983)). A covenant to reasonably market the production as to price is not implied when the lessor’s royalty is based on market value at the well. Yzaguirre v. KCS Resources, Inc. , 53 S.W.3d 368, 373 (Tex. 2001). See PJC 303.10 on implied cove nants. Source of question and instruction. PJC 303.7 is derived from Cabot Corp. , 754 S.W.2d at 106. See also Union Pacific Resources Group, Inc. v. Hankins , 111 S.W.3d 69 (Tex. 2003); Yzaguirre , 53 S.W.3d 368; Amoco Production Co. v. Alexander , 622 S.W.2d 563, 568 (Tex. 1981); Amoco Production Co. v. First Baptist Church of Pyote , 611 S.W.2d 610 (Tex. 1980).

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