News Oil & Gas

Oil And Gas Contract Drafting Lessons From Texas Ruling

Law360 (April 1, 2021, 4:35 PM EDT) — On March 12, the Supreme Court of Texas issued a unanimous opinion that clarifies when a lessee is entitled to deduct post-production costs from royalties paid to the lessor under oil and gas leases.[1]

Construing a lease and an addendum to the lease, the court in BlueStone Natural Resources II LLC v. Randle held that the “gross value received” language in the addendum constitutes a valuation point at the point of sale — which does not allow deduction of post-production costs — that conflicted with the form lease’s “at the well” provision — which generally allows such deductions.

Because the addendum…

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