Oil and gas cases seem to supply more than their share of fights about the meaning of contract terms. Why? We suspect it has something to do with money.
Take Total E&P USA, Inc. v. Kerr-McGee Oil & Gas Corp., No. 11-30038 (5th Cir. Mar. 12, 2013). In that case, two of three lessees of acreage that lies offshore Louisiana, Total and Statoil, refused to pay overriding royalties to Kerr-McGee and others. The third lessee, Chevron, did pay. Why the difference? Total and Statoil asserted that a sentence in the assignments of the overriding royalty interests entitled them to suspend payment of overrides until the lease produced 87.5 million barrels of "oil equivalent". The sentence provided:
The overriding royalty interest assigned herein shall be calculated and paid in the same manner and subject to the same terms and conditions as the landowner's royalty under the Lease.
Total and Statoil claimed that, because a federal statute entitled them to "suspend" payment of royalties that they otherwise owed to the United States as lessor until the lease reached the 87.5 million barrel threshhold, neither did they have to pay the overrides during the suspension.
Think again, the Fifth Circuit held. The panel ruled that what it called the "calculate and pay" language did not clearly and explicitly entitle the lessees to piggyback their overriding royalty obligations on the statutory suspension. The case thus went back to the district court for more work.
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