Court Opinion

ID: 9006105
Source: CourtListenerOpinion
Date Created: 2022-11-27 13:29:40.097574+00
Date Added: 2024-06-11T17:11:16.992403
License: Public Domain

BRIGHT, Senior Circuit Judge,
concurring.
I agree with the excellent discussion and opinion authored by Judge Van Sickle. I add these comments relating to the right of the lessors to share in the take-or-pay settlement proceeds which Jones and McCoy received.
As a general rule, oil and gas leases should be construed in manner so that the lessee and the lessor split all economic benefits arising from the land. Henry v. Ballard & Cordell Corp., 418 So.2d 1334, 1338 (La.1982); Harrell, Developments in Non-Regulatory Oil & Gas Law, The 30th Annual Institute on Oil and Gas Law Taxation, Southwestern Legal Foundation, 336 (1979). The fact that a lease conditions the receipt of royalties on the production, instead of the sale, of gas, should not annul a lessor’s right to receive proceeds from take-or-pay contracts. From an economic standpoint and for other reasons, a royalty should be due on take-or-pay payments or settlement. See Comment, The Lessor’s Royalty on Take-Or-Pay Payments and Settlements Under Gas Sales Contracts in Louisiana, 47 La.L.Rev. 589 (1987).
The express terms of the lessors’ leases condition their receipt of royalties on the production of gas, and therefore they do not have a right to receive a share of a take-or-pay payment until production has occurred. This result is fair because the pipeline may eventually order delivery of additional gas under the contract to “makeup” for the earlier deficiencies. When this “make-up” gas is delivered, for which the pipeline has already paid under the “take- or-pay” clause, the lessee will pay the lessor his share of the value of that gas, which will approximate what the lessor would have gotten had he received a share of the “take-or-pay” payment.
However, in this case, the lessee and the pipeline terminated the gas-purchase contract and settled the pipeline’s take-or-pay obligation with a lump-sum payment moving from the pipeline to the lessee. Because no future purchases were linked to that payment, under a strict reading of the lease, the lessors permanently lost their rights to receive a portion of the royalties from the settlement. Jones and McCoy may have reaped a substantial benefit from the lease that purported to be unrelated to the production of gas. This result would conflict with the underlying purpose of the lease, which is for the lessor to receive a share of all proceeds generated by the land, and may have resulted in Jones and McCoy receiving a potentially unjust enrichment. See Comment, Royalty on Take-or-Pay Payments and Related Considerations Accruing to Producers, 27 Houston L.Rev. 105, 134 n. 225 (1990). Instead of viewing those proceeds as a windfall that the lessees (but not the lessors) received due to contractual maneuvering, a court should regard a lump-sum take-or-pay settlement as part of the proceeds arising from the sales of gas that previously had been produced under the contract. See Callery Properties, Inc. v. Federal Power Comm’n, 335 F.2d 1004, 1021 (5th Cir.1964) (holding that take-or-pay provisions gener*534ate proceeds from “sales” within the meaning of the Natural Gas Act, 15 U.S.C. § 717(b) (1964)). Essentially, the settlement could represent how much Arkla was willing to pay: 1) to be released from the contract; and, in effect, 2) for the gas it has already received under the contract.
Thus, with regard to the lessors’ unjust enrichment claim against Jones and McCoy, a substantial question of fact exists in this case as to whether, under the leases, the lessors had a right to receive a portion of the take-or-pay settlement that Arkla paid Jones and McCoy. If the lessors should have received a share of those proceeds, then Jones and McCoy were unjustly enriched, and they may have to share a portion of that “take-or-pay” settlement with the lessors.