Earlier this year, we reported the San Antonio Court of Appeals decision in Dragon v. Harrell, a fixed versus floating royalty case. Here, the court is again confronted with the same issue. Relying on its decision in Graham v. Prochaska, the court explains why the estate misconception theory does not apply and explains how the interest in dispute is a fixed nonparticipating royalty interest.
Law360, New York (September 25, 2015) — Over the last five years, American shale production has more than tripled. Since last October, however, the oil and gas industry has trudged through a long and pronounced slump in crude oil prices in what has been termed the “Oil Bust of 2015.” Oil prices dropped below $40 a barrel last month for the first time in over six years, and major relief from this slump may be distant as EIA recently announced that it expects crude to average $59 per barrel in 2016.
This low-price environment has been unfavorable for most royalty owners, as low oil prices generally lead to proportionately low royalty payments. It has also lead to a slow-down in additional drilling and development activity as many oil and gas companies slashed budgets for 2015 and 2016. Drilling contractors have stored hundreds of rigs, and oil and gas companies have drastically reduced their workforces. A strong indicator of this slow-down can be found in the Texas Railroad Commission drilling statistics, showing 964 permits issued last month in Texas, compared with 2,440 in August of 2014. Read More »
In a 5-4 decision, the Texas Supreme Court issued its opinion in Chesapeake Exploration, L.L.C. v. Hyder, 14-0302, 2015 WL 3653446 (Tex. June 12, 2015), holding that Chesapeake is prohibited from deducting postproduction costs from an “overriding royalty interest” described in a lease. The Majority noted that while overriding royalty interests are generally subject to post production costs, the language used in the lease creating the Hyder overriding royalty shifted the burden of paying these postproduction costs to Chesapeake, alone.