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27 minutes to go:

 

In the first part of this case, certain basic considerations need to be verified for a demonstration of a meeting of minds, but also for the purposes of establishing the rights to royalties. The judge analyzes language regarding “sold” or “used” in the construction of contract clauses in an effort to establish responsibility by the company for what it pays, how much it pays, and upon what basis it pays. Explication is provided regarding the differences for the lease agreement between the company and the royalty-interest owner as well as the contract for the well itself between the company and the royalty-interest owner. The considerations of “sale” upon “delivery” regarding “delivery” at the well versus “delivery” in the field but not at the well or “delivery” outside of the field are evaluated with regards to an understanding of “market value” at the well upon delivery, including outside of the field.

 

The determinations then go to the market value itself. The judge reviews Exxon’s process for determining market value based on one month out of a quarter but ALSO states that Exxon SHOULD be evaluating EVERY MONTH. This then calls into question not only distance but timeframe regarding the relationship between production at the well and the taking of delivery outside of the field. In one instance, the judge identified an area outside of the field of 3 ½ miles, but the time it takes for a specific production of gas “at the well” to get to specific site for “taking of delivery” offsite needs to be addressed. It is a substantial difference if “market rate” is not adjusted for or evaluated within a reasonable timeframe – including in terms of what is legally expected, including per terms of contract, or what would be considered acceptable as an industry standard. To allow for misrepresentations of legal implications or appropriate application of contract terms as long as ones in the gas and oil sector such as those in this case brings up another context for considering the qualitative production implications, including the concept of “suitability” or misalignment of production goals within a field that can defraud a contractee, provide the contractor or other contractees with unjust enrichment, or increase the likelihood of serious hazard, damage, or harm to a number of individuals or entities involved. 

 

The costs involved with “taking delivery” also have to factor in the alignment of production goals with adherence to legal standards, including lease agreements, contracts for drilling or production, or royalty agreements when it comes to taxation. In this case, the judge describes how three different entities are physically involved in the production from this specific field – including the field itself up through the “tailgate” – but each has a different characterizations regarding rights of access or liability. Additionally, under Texas Law regarding taxation for a mineral interest by the state, one-sixteenth goes to the state. But in this case, while no specific  interests are numbered in the field itself, 15 entities are identified as of interest to the political subdivision with which the Houston Pipeline Company works to contract through the company to access the wells owned by the leasees in the field. A number of other counties are identified as similarly arranged with the company, but insofar as these are determinations thus far explicated, then the “sale” or “use” in one area will determine the tax implications including who pays what tax or who is availed of what tax option, responsibility, potential liability or incentive. This determination of eligibility for waiver or offset and the resultant access to the benefits of applying a waiver or offset, as well as risks, penalties, or potential damages, including insofar as there may be criminal implications involved with failure to meet legal requirements, contract terms, or other standards, needs to be evaluated and addressed contractually. 

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Exxon Corporation et al., Petitioners, v. Triphene Middleton et al, Respondents

613 S.W.2d 618

1971

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4:41 pm CST

March 15, 2022

Part 3 of 3

Charity Colleen Crouse

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Posted 4:45 pm CST

March 15, 2022

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