Supreme Court

Carl v. Hilcorp Energy Co.

• Case number: 24-0036
• Legal category: Oil and Gas
• Subtype: Leases
• Set for oral argument: March 19, 2024

Case Summary

These certified questions ask the Supreme Court to construe language used in oil-and-gas leases. The plaintiffs Carl and Anderson White filed a class action on behalf of royalty owners to leases operated by defendant Hilcorp as lessee.  The leases state that Hilcorp must pay royalties “on gas . . .  produced from said land and sold or used off the premises . . . the market value at the well of one-eighth of the gas so sold or used.” Hilcorp also “shall have free use of . . . gas . . . for all operations hereunder.” The parties disagree about whether Hilcorp owes royalties on gas used off-lease for post-production costs. The district court granted Hilcorp’s motion to dismiss, and the Whites appealed.

The Fifth Circuit seeks guidance from the Supreme Court as to the effect of BlueStone Natural Resources II, LLC v. Randle, 620 S.W.3d 380, 386 (Tex. 2021), on the issues presented. Randle has a discussion of a free-use clause, but the Fifth Circuit noted a lack of Texas authority analyzing Randle when construing value-at-the-well leases. The Fifth Circuit certified two questions to the Texas Supreme Court:

(1) After Randle, can a market-value-at-the well lease containing an off-lease-use-of-gas clause and free-on-lease-use clause be interpreted to allow for the deduction of gas used off lease in the post-production process?

(2) If such gas can be deducted, does the deduction influence the value per unit of gas, the units of gas on which royalties must be paid, or both?

The Court accepted the certified questions.

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