This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
The Plaintiffs, who are royalty owners, alleged that the Defendants, Amoco Production Company and Amerada Hess, miscalculated royalties owed under a 1979 Unit Agreement related to the Bravo Dome Carbon Dioxide Gas Unit. The dispute centered on whether the Defendants were authorized to deduct certain post-production costs, such as compression, dehydration, and gathering expenses, from the sales price of the gas when calculating royalties. The Plaintiffs also argued that a prior agreement, the Amoco Assignment, which provided more favorable royalty terms, should control over the Unit Agreement (paras 1-4).
Procedural History
- District Court of Quay County: The trial court ruled in favor of the Defendants on all claims but ordered them to account for past and future deductions from the sales price used to calculate royalty payments (para 1).
Parties' Submissions
- Plaintiffs: Argued that the Unit Agreement did not authorize the deduction of unit expenses in calculating royalties and that the Amoco Assignment, which provided more favorable terms, should control. They also contended that Article 14.3 of the Unit Agreement exempted them from bearing any unit expenses (paras 2, 7, 28-29).
- Defendants: Asserted that the Unit Agreement controlled the calculation of royalties and that the deductions for post-production costs were proper under the "net proceeds at the well" clause. They also argued that the Amoco Assignment was superseded by the Unit Agreement (paras 3, 24, 39).
Legal Issues
- Did the Unit Agreement authorize the deduction of post-production costs in calculating royalties?
- Was the phrase "net proceeds derived from the sale of carbon dioxide gas at the well" ambiguous?
- Did Article 14.3 of the Unit Agreement exempt the Plaintiffs from bearing unit expenses?
- Did the Unit Agreement nullify the royalty provisions of the Amoco Assignment?
Disposition
- The Court of Appeals affirmed the trial court's judgment in favor of the Defendants, holding that the Unit Agreement controlled the calculation of royalties and authorized the deduction of post-production costs (para 41).
Reasons
Per Rudy S. Apodaca J. (Bosson and Armijo JJ. concurring):
- The Court found that the Unit Agreement was unambiguous and that the phrase "net proceeds derived from the sale of carbon dioxide gas at the well" clearly allowed for the deduction of post-production, value-enhancing costs, such as compression, dehydration, and gathering, to determine the value of the gas at the wellhead (paras 3, 15-16, 24).
- The Court rejected the Plaintiffs' argument that Article 14.3 exempted them from bearing unit expenses, reasoning that the deductions were not direct costs imposed on the Plaintiffs but were instead used to calculate the value of the gas at the wellhead for royalty purposes. The Court emphasized that this approach was consistent with industry standards and case law (paras 28-34).
- The Court held that the Unit Agreement, not the Amoco Assignment, governed the calculation of royalties. Article 3.3 of the Unit Agreement expressly conformed prior agreements, including royalty provisions, to its terms (paras 37-40).
- The Court noted that the Plaintiffs had received royalties calculated in the same manner as the State of New Mexico, which had approved the cost adjustments, and that the Plaintiffs did not dispute the accuracy of the cost adjustments themselves (paras 9, 26).