Austin Oil and Gas Attorney Gregory D. Jordan Comments on $10 Million Carbon-Injection Royalty Case
Austin, TX (Law Firm Newswire) February 24, 2014 - The Texas Supreme Court will decide a $10 million dispute between property owners and Occidental Permian Ltd. over the valuation of natural gas production.
The case questions whether a company can take deductions for the cost of carbon injection from the mineral royalties it pays to property owners.
“Deductions for production costs and post-production costs are a common area of dispute between royalty owners and oil and gas producers,” says Gregory D. Jordan, an Austin oil and gas attorney not involved with the case. “It is extremely important for mineral and royalty owners to have the assistance of an experienced oil and gas attorney in negotiating the terms of their leases and production agreements so that these disputes can be avoided. The initial agreements should clearly establish the rights and obligations of the parties.”
The lawsuit was filed by a group of Cogdell Canyon Reef Unit royalty owners. The plaintiffs claim that Occidental reduced their royalty payments by deducting the cost of production services provided by a subsidiary of Kinder Morgan Inc. Carbon dioxide injection was used to produce natural gas and natural gas liquids as part of an enhanced recovery project.
The plaintiffs were awarded damages of $10 million and attorneys' fees of $500,000 by a trial court, but that decision was reversed in October 2012 by the Eleventh Court of Appeals. The appeals court found that the expense of removing carbon dioxide from the gas stream was properly shared between landowners and producers, because it was part of the cost of treating the gas so it could be sold.
The lawsuit raises the question of whether gas is properly valued before extraction, in its “native” state, or when it is commingled with carbon dioxide at the wellhead. Additional issues in the lawsuit include whether removing, compressing and transporting carbon dioxide should be classified as production operations, and whether the off-site action of removing carbon dioxide for reuse is properly classified as a production operation or a post-production operation.
The royalty owners claim that the decision by the appeals court is in conflict with a 1974 ruling by the Texas Supreme Court, which found that royalty obligations only apply to natural gas produced in its “native” state, and not to minerals produced with carbon dioxide injection methods. Occidental takes the position that the gas should be valued based on its condition when it left the well, and that gas containing up to 85 percent carbon dioxide requires additional processing.
Law Offices of Gregory D. Jordan
5608 Parkcrest Drive, Suite 310
Austin, Texas 78731
- Texas jury awards 1.5 million dollars to mineral rights owner
A Harris County, Texas jury awarded $1.5 million to Jack Grynberg and his family, finding that Exxon Mobil did not act in good faith in determining the mineral royalties the company owed him. Grynberg says he is owed even more and is considering appealing the verdict. Grynberg says his royalties compensation could have been nearly [...]
- Texas mental health center files breach of contract lawsuit against software provider
A mental health center in Texas is suing a software provider for breach of contract. The lawsuit was filed in state district court in Waco by the Heart of Texas Region Mental Health Mental Retardation Center (MHMR), against CoCentrix Inc., a Florida-based company. The lawsuit seeks a refund of $250,000 that the agency claims it [...]
- Former Texas Department of Agriculture worker files employment lawsuit claiming race discrimination
A former deputy chief financial officer for the Texas Department of Agriculture has filed a lawsuit against the agency, alleging that she was fired because of her race. Shelia Latting, who is black, claims that her employment was terminated a year ago, and that she was replaced by two white employees who were less qualified. [...]