Face Challenges Confidently

067 Hutchings v. Chevron U.S.A., Inc.

Tuesday, September 1st, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Hutchings v. Chevron U.S.A., Inc., 862 S.W.2d 752 (Tex. App.–El Paso 1993 writ den.) Concerns the definition of casinghead gas. An old 1925 lease provided for a tiny fixed-rate royalty on casinghead gas and a net proceeds royalty on natural gas used off the premises or marketed. Chevron sold the “casinghead gas” for use off the premises. The issue was whether the royalty payable was payable under the casinghead gas provision or the natural gas provision.
Held: royalty was payable at the casinghead gas rate. The court relied upon old pre-1925 cases distinguishing between natural gas and casinghead gas which generally held that casinghead gas was “part of oil” or a “constituent element of oil.” The royalty owners also contended that the case involved “high perfs” or perforations above the gas-oil contact in the gas cap. Chevron successfully contended that the gas cap was dissipated and that there was no gas-oil contact at the time the high perfs were made. Therefore, there was no co-mingling of natural gas and casinghead gas.
The case is significant in illustrating the continuing difficulty in defining production as “gas” or “casinghead gas” under lease provisions which depend upon the definition to determine how to construe the lease.