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Click here for the full text of this decision FACTS:Tana Oil and Gas Corp. appeals the district court’s grant of partial summary judgment holding that Tana breached the terms of its oil and gas lease agreements with appellees, a class of mineral-interest owners, by underpaying royalties owed to class members and by deducting gas-lift fees from certain class members’ royalty payments. Tana also appeals the district court’s grant of summary judgment awarding damages and attorney’s fees to the class. Tana contends that it paid royalties based on 100 percent of the amount it realized from the sale of gas produced from the class members’ leases and that the plain language of the royalty provisions permits the deduction of reasonable post-production costs. Tana also claims that it did not impermissibly deduct gas-lift fees. Tana insists that the district court improperly denied its counter-motion for summary judgment, because it did not breach any class member’s lease agreement as a matter of law. HOLDING:The court reverses the district court’s summary judgment and renders judgment that Tana did not breach the lease agreements. The court remands for a determination of whether Tana is entitled to attorney’s fees. Tana is required to calculate royalties owed to the class based on three royalty provisions contained in the various lease agreements. Depending on which of the three applicable royalty provisions is contained in a class member’s lease, Tana is obligated to pay a fractional share of either the “amount realized” or “net proceeds” from its sale of the gas at the well. The term “amount realized” has been construed by Texas courts to mean the proceeds received from the sale of the gas or oil. In its motion to amend the class definition, the class stated, “The terms amount realized, proceeds and net proceeds computed at the wellhead are synonymous: they refer to the money obtained by an actual sale.” The phrase “at the well” means before value is added by preparing the raw gas for market. Therefore, the unambiguous language of the royalty provisions demonstrates the parties’ clear intent that Tana be required to pay royalties on all amounts it actually received from its sale of the raw, unprocessed gas at the well. Tana sold the raw gas to Fayette at the well. The gas contract did not state a fixed price for the gas. It stipulated that the price for 100 percent of the raw gas sold by Tana at the well would be 84 percent of the resale price of the residue gas and extracted liquids, after treatment. This pricing formula represents the negotiated value of the raw gas. In its motion for summary judgment, the class argued that, because Tana is obligated to pay royalties on 100 percent of the total volume of gas sold at the well, class members are entitled to royalties on the additional 16 percent of the proceeds from the sale of the residue gas and the extracted liquids after processing � proceeds that were not remitted to Tana under the terms of the gas contract. The class maintained that it is irrelevant that Tana did not receive and was not owed this portion of the total post-processing sales proceeds. The class is incorrect. The class erred by equating the sale of raw gas at the well to the separate and distinct third-party sales of the residue gas and extracted liquids on the open market. Tana did not sell the residue gas or the liquids; Tana sold raw gas at the well, before value was added by preparing the gas for market. In exchange for its sale of 100 percent of the total volume of raw gas at the well, Tana received a price equivalent to 84 percent of the proceeds for the processed gas. Tana never received all of the proceeds from the sales of the residue gas and the liquids. Accordingly, by paying the class royalties based on 100 percent of the money it actually received, Tana did in fact pay royalties on 100 percent of the total volume of raw gas that it sold at the well. Thus, as a matter of law, Tana did not breach the lease agreements because it calculated royalties owed to the class based on the full amount it received from its sale of the raw gas at the well. The class alleged in its motion for partial summary judgment that it was improper for Tana to allow Aquila to deduct compression and treating costs from the sales price of the raw gas Tana sold at the well. The court holds that the class’ lease agreements permit the deduction of reasonable post-production costs. Therefore, Tana did not breach the lease agreements by failing to pay royalties on the amount deducted to cover post-production expenses. The class also claimed that Tana breached the terms of the lease agreements by failing to pay royalties on the value of gas that was metered and sold at the well but consumed off-lease by the processor for plant and compressor fuel. Under the lease agreements, Tana is to pay the class royalties on the net proceeds it actually receives from the sale of the raw gas at the well. As discussed above, Tana did not sell the raw gas at a fixed price; it entered into an agreement, under which the price of the raw gas would be contingent upon the downstream sales prices of the treated residue gas and extracted liquids. The gas used by the processor for compression and plant fuel was not sold and, as a result, Tana did not receive any money for this gas. Tana is only obligated under the lease agreements to pay the class royalties on money actually received; Tana is not required to pay royalties based on the value of gas that was never sold downstream. Tana periodically used gas, produced from the class’ leases, for gas-lift operations at five of the underlying gas wells. The plain language of the lease agreement authorizes Tana to use gas produced from the leases in all operations. In addition, it is clear that Tana was not required to pay royalties on any gas so used. OPINION:Smith, J.; Smith, Patterson and Puryear, JJ.

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