The Post-Production Costs Issue in Texas and Louisiana: Implications for the Fate of Implied Covenants and Pro-Lessor Clauses in the Shale Era Oil and Gas Lease.

Authors

Laura H. BurneyFollow

Abstract

This Article discusses the implications of Heritage Resources, Hyder, and several Louisiana cases on the “post-production costs” issue in gas royalty clauses, as well as the fate of implied covenants in the shale era. To better understand that issue, this Article first provides a background on the interaction of express lease clauses and the doctrine of implied covenants. This discussion reveals that implied covenants are relegated to a minor role in light of extensive express clauses in Shale Era leases because courts frequently view express or “plain” terms as barring implied covenants. The problem, however, as commentators have noted—particularly regarding interpretations of the gas royalty clause—is that “plain terms” are not always so plain. Instead, different judges in the same state reach different interpretations of the same clause when applying accepted rules of document interpretation. Document interpretation therefore controls resolution of oil and gas lease disputes, in addition to the fate of both implied covenants and express clauses. Ultimately, because modern forms include extensive express terms, the significance of implied covenants will fade. As courts continue to address no deductions and other pro-lessor clauses, scrutiny of express terms will dominate lease litigation in “plain meaning” states like Texas and Louisiana because this approach provides predictability for lessors and producers, which encourages negotiation rather than litigation. Therefore, due to the unpredictability inherent in the document interpretation process, and the recent dramatic drop in oil and gas prices, this Article urges landowners and producers alike to avoid the courthouse and opt for the bargaining table, where negotiating and mediating procedures provide more efficient resolutions to disputes over the meaning of express lease clauses in the shale era.

Publisher

St. Mary's University School of Law

Recommended Citation

Laura H. Burney, The Post-Production Costs Issue in Texas and Louisiana: Implications for the Fate of Implied Covenants and Pro-Lessor Clauses in the Shale Era Oil and Gas Lease., 48 St. Mary's L.J. (2017).
Available at: https://commons.stmarytx.edu/thestmaryslawjournal/vol48/iss4/1