Reported / Citable
Background
YMC Royalty Company LP leased its mineral interests in a 640-acre tract in Loving County, Texas, to WPX Energy Permian, LLC’s predecessor. The lease provided for a 25% royalty and generally prohibited deductions for post-production expenses. It also allowed YMC, after specified written notice and a 30-day opportunity to cure, to terminate the lease if its royalty was not paid when due.
After WPX’s accounting was integrated into an affiliate’s system, certain gathering fees were deducted from YMC’s royalties. YMC sent a formal notice of nonpayment in December 2021, and WPX refunded the identified deduction. YMC later asserted that WPX had also underpaid royalties on plant fuel, flared gas, and natural-gas liquids and contended that the lease had terminated. WPX maintained that the notice was insufficient and that any underpayments were offset by more than $2 million in alleged overpayments of oil royalties.
The Court’s Holding
The court granted WPX’s summary-judgment motions in part, holding that YMC’s December 2021 notice did not terminate the lease. It therefore dismissed YMC’s conversion and quiet-title claims and dismissed the breach-of-contract claim to the extent it depended on lease termination. The court denied YMC’s motion for summary judgment on its breach-of-contract and quiet-title claims.
The court nevertheless declined to enter complete judgment for WPX on the remaining royalty dispute. The record did not conclusively establish whether WPX was authorized to sell YMC’s share of oil and deduct post-production costs. That factual dispute also prevented the court from deciding whether WPX’s claimed oil-royalty overpayments eliminated YMC’s recoverable damages. YMC’s remaining claims concerning royalties, statutory relief, money had and received, and an accounting or audit therefore survived for trial.
Key Takeaways
- An underpayment can constitute “nonpayment” under the lease, but termination still requires compliance with the lease’s notice-and-cure procedure.
- Because YMC’s notice did not terminate the lease, its termination-based breach claim, conversion claim, and quiet-title claim could not proceed.
- Fact disputes over WPX’s authority to market YMC’s oil and deduct post-production costs prevented summary judgment on whether alleged overpayments offset the remaining royalty damages.
Why It Matters
The ruling illustrates that a royalty-payment error does not automatically produce lease forfeiture, even when the lease expressly authorizes termination for uncured nonpayment. Lessors must satisfy the contractual notice mechanism, while lessees relying on offsets must establish that the underlying deductions were authorized.
The decision also leaves the core accounting dispute unresolved: WPX defeated YMC’s lease-termination theory but must still face trial on several remaining royalty-related claims.