Case Law Update: Nettye Engler Energy, LP v. BlueStone Nat. Res. n L.L.C.

At issue is deed language stating that royalty shall be delivered 11free of cost in the pipe line [sic], if any, otherwise free of cost at the mouth of the well or mine[.]”

The parties agreed that no PPC were incurred prior to delivery into the existing gas pipeline, but did not agree to the location of delivery. Did delivery occur in the pipelines on the wellsite premises, meaning the royalty was burdened with all PPC from that point to purchase? Or was delivery downstream, at the transportation pipeline or further?

The royalty owners argued that the gas gathering pipeline is not a pipeline as the term was used in the deed; the Court of Appeals for the Second District of Texas disagreed, and held that delivery occurred in the gathering pipeline. This month, the Supreme Court of Texas agreed, stating that 11[a] gas gathering pipeline is a ‘pipeline’ in common, industry, and regulatory parlance” and the language of the deed did not make a limitation to a specific pipeline. BlueStone Natural Resources II, LLC was correct to use the point where unprocessed gas entered the gathering pipeline as the valuation point, leaving the royalty to bear its proportionate share of PPC from that point forward.