MAGNOLIA POINT MINERALS VS CHK LA AND PXP LA - CIVIL ACTION NO. 11-00854 (Decision On No Cost Royalty Language)

CONCLUSION


The Court finds that the Lease language at issue is sufficiently clear and
unambiguous. The intent on the face of the document demonstrates that the production
payments are to be determined using the benchmark calculation of “market value at the
well.” The “no cost” provision in the Exhibit to the Lease does not alter the meaning of
this term of art but applies to any other costs incurred after calculating the “market value
at the well.” Therefore, Chesapeake may deduct post-production costs, including
transportation costs, as set out in determining the “market value at the well.”
Accordingly,
IT IS ORDERED that Chesapeake’s Cross Motion for Partial Summary Judgment
(Record Document 31) be and hereby is GRANTED.
IT IS FURTHER ORDERED that Magnolia’s Motion for Partial Summary
Judgment (Record Document 23) be and hereby is DENIED.
THUS DONE AND SIGNED, in chambers, Shreveport, Louisiana on this 30th

 

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Permalink Reply by Skip Peel - Mineral Consultant on August 9, 2012 at 6:18

Anyone negotiating a "no cost royalty" clause for an O,G & M lease needs to read the entire opinion and act accordingly. 

Permalink Reply by Ben Elmore on August 9, 2012 at 6:29

This officially brings LA law in line with TX law on the interplay between a market value royalty clause and cost-free clause.  I know that CHK relied on the Texas case law in its arguments, and although the district court did not cite the primary Texas case, Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118 (Tex. 1996), it held the same way.  The parties in this case have appealed, so we will see if the Fifth Circuit goes the other direction, but I doubt it.

Permalink Reply by Skip Peel - Mineral Consultant on August 9, 2012 at 12:30

I doubt it also, Ben.

Permalink Reply by HBP on August 9, 2012 at 6:41

I read this again over the weekend and thought what a stretch it was to think an attorney is going to proactively put that type of language in the exhibit for any intent other than the post production charges.  It seems obvious the intent, but the Judge makes the call.  It will be interesting to see if there is further determination on the issue at a different level.  

That's not to say we shouldn't all re-assess our no-cost clauses....  This case is language specific , and I don't see CHK winning for every flavor of no cost clause.

Permalink Reply by Skip Peel - Mineral Consultant on August 9, 2012 at 12:39

The legal somersaults continually performed by the judiciary in order to rule in favor of the industry are unbelievable in their scope and audacity.  IMO those judges trust that their constituents do not notice, or will soon forget, and that their monied supporters will reward them considerably for going out on a legal limb on their behalf.

Permalink Reply by Hopeful About Natural Gas on August 9, 2012 at 14:10

It would be interesting to see a list of the donors to this judge's campaign (and those of any relatives who are running for election)

Permalink Reply by Skip Peel - Mineral Consultant on August 9, 2012 at 14:20

I imagine that information is out there somewhere.  We can start with this.

Hicks, S. Maurice Jr.

U.S. District Court, Western District of Louisiana

Nominated: September 12, 2002 | Confirmed: May 19, 2003

Summary: A former lawyer in private practice, Hicks actively campaigned for GOP Rep. Jim McCrery from 1987 till the time of his nomination. Hicks served as a close advisor to McCrery and as a member of the McCrery campaign’s steering and finance committees. He gave McCrery $3,500 from 1990 to 1994, according to the Center for Responsive Politics. McCrery initiated Hicks’ judicial nomination by submitting his name to Louisiana’s Republican congressional delegation, which later recommended Hicks to President Bush. Hicks contributed $2,000 to the Louisiana Republican Party and $250 to the national Republican National Committee between 2001-2002. His wife, Glynda Hicks, gave $1,000 to Sen. Vitter’s campaign in 2004.

Permalink Reply by Henry on August 9, 2012 at 14:26

Aren't these federal judges appointed for life?  They don't have to campaign for their job.

According to Wikipedia, 8 of the 11 judges in who hear cases in the Western District of Louisiana were appointed by Republican presidents.  Judges appointed by Republican Presidents will be more pro-business than those appointed by Democratic Presidents.  People forget that one of the most important legacies of a President is the judges whom he appoints.  There is one senior judge in the the Western District of Louisiana who was appointed by Nixon!  

So, if you don't like a pro-business federal judiciary, there is only one way to change it -  don't vote for Republicans.

Permalink Reply by Ben Elmore on August 10, 2012 at 9:04

Yes, this is a federal judge appointed for life. 

Permalink Reply by Jo Ann Carter on August 9, 2012 at 14:19

Skip, I have a 5 or 6 year old lease with Pinnical. This lease was flipped to CHK. I have been watching to see if any wording was simualr to mine.

25. Notwithstanding any wording in the Lease to the contrary, is is hereby agreed by Lessor and Lessee that any monies due from this lease by production will be considered to be sold at the well head and not incur any transportation cost. So if it is sold at the well head, do I still have to pay this new post-production cost?

Permalink Reply by Skip Peel - Mineral Consultant on August 9, 2012 at 14:26

I Am Not An Oil & Gas Attorney.  My reading is that any definition that bases payment on the value at the well head allows CHK or any lessee/operator to deduct transportation costs to the point of sale.  Jo Ann, Pinnacle is a land company.  They didn't "flip" your lease, they executed it on behalf of CHK.

Permalink Reply by Jo Ann Carter on August 9, 2012 at 14:37

They were the operator of a small vertical well that had me HBP. They sold my lease to CHK. They may well be a land company but they sure did not mind taking all of the peoples bonuses around here. Thanks for the answer. I sure do not understand. I thought the well head was at the well, not down the line. I do not know why I feel so cheated by these oil people. There was a time everyone was so excited around here. It appears that when they get through finding new items to deduct, we may be paying them just for being around.

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