Opinion ID: 510046
Heading Depth: 2
Heading Rank: 3

Heading: The Two Contracts Converge

Text: 18 The standard government lease expressly authorizes the Secretary to establish reasonable minimum values for purposes of computing royalty on natural gas obtained from these leases. This dispute initially erupted over the Secretary's decision to include take-or-pay revenues as part of the reasonable minimum value of natural gas sold. The Secretary's interpretation stems in part from 30 C.F.R. Sec. 206.150 which provides that [u]nder no circumstances shall the value of production be less than the gross proceeds accruing to the lessee from the disposition of the produced substances.... Under the Secretary's reasoning, the take-or-pay payment is part of the total consideration for the exclusive dedication of gas to the gas sales contract. Consequently, the Secretary has decreed take-or-pay revenues to be part of the gross proceeds accruing to the lessee, and subject to royalty.