Appeal from the United States District Court for the Northern District of Texas.
For Gordon Potts, Brandy West, Plaintiffs - Appellants: Shayne Daniel Moses, Moses, Palmer & Howell, L.L.P., Fort Worth, TX; Robert Earl Aldrich Jr., Esq., Senior Attorney, Gardner Aldrich, L.L.P., Fort Worth, TX.
For Chesapeake Exploration, L.L.C., Defendant - Appellee: Roger Clyfton Diseker, Clark Harrison Rucker, Bart Alan Rue I, Esq., Matt David Stayton, Kelly, Hart & Hallman, L.L.P., Fort Worth, TX.
For City of Fort Worth, Amicus Curiae: Ralph H. Duggins III, Esq., Philip Avery Vickers, Cantey Hanger, L.L.P., Fort Worth, TX.
Before JONES, SMITH, and OWEN, Circuit Judges.
PRISCILLA R. OWEN,
The meaning of royalty provisions in an oil and gas lease are in dispute. Gordon Potts and Brandy West (the lessors) appeal the district court's grant of summary judgment in favor of the lessee, Chesapeake Exploration, L.L.C. (Chesapeake). We affirm.
Potts and West are two of the lessors in an oil, gas, and mineral lease in which Chesapeake is the successor-lessee to FSOC Gas Co., Ltd. (FSOC). Three paragraphs of the lease are at issue. Paragraph 11 provides in relevant part:
The royalties to be paid by Lessee are: . . . on gas . . . the market value at the point of sale of 1/4 of the gas sold or used. . . . Notwithstanding anything to the contrary herein contained, all royalty paid to Lessor shall be free of all costs and expenses related to the exploration, production and marketing of oil
and gas production from the lease including, but not limited to, costs of compression, dehydration, treatment and transportation.
Paragraph 29 contains a " favored nation" provision, which states:
Lessee agrees if Lessee or any of its Working Interest Partners has agreed to pay or later agrees to pay a higher royalty or bonus consideration to another landowner, mineral owner or other parties, (in the same drilling unit, spacing unit or pooled or utilized land to which the leased lands are included), then Lessee shall pay to Lessor an amount based on such higher royalty, or bonus consideration retroactive to the effective date of the Lease(s).
Paragraph 37 provides, in pertinent part:
Payments of royalties to Lessor shall be made monthly and shall be based on sales of leased substances to unrelated third parties at prices arrived at through arms length negotiations. Royalties to Lessor or leased substances not sold in an arms length transaction shall be determined based on prevailing values at the time in the area. Lessee shall ...