Louisiana Supreme Court
603 So. 2d 166 (La. 1992)
Frederick Frey (plaintiff) leased oil and gas interests to the Amoco Production Company (Amoco) (defendant). The lease provided that Frey would be paid a royalty “on gas sold by [Amoco of] one-fifth (1/5) of the amount realized at the well from such sales.” Amoco signed a gas-sales contract with Columbia Gas Transmission Corporation (Columbia). The contract with Columbia included a take-or-pay provision, which permitted Columbia the option to either buy a certain amount of gas each year or, if Columbia chose not to take the gas, pay a minimum value of the gas that Amoco had available. In a separate proceeding, Amoco received $66.5 million from Columbia pursuant to a settlement agreement based on the take-or-pay provision in the Columbia contract. Frey brought suit against Amoco in the United States District Court for the Eastern District of Louisiana to recover royalties calculated based on the Columbia settlement. Amoco argued that a sale was required before any royalty was due, and that under a take-or-pay payment, no sale would occur. The district court found in favor of Amoco. The United States Court of Appeals for the Fifth Circuit reversed. On a motion for rehearing, the court of appeals certified to the Louisiana Supreme Court the question of whether Frey was entitled to recover royalties from Amoco based on take-or-pay payments.
Rule of Law
Holding and Reasoning (Cole, J.)
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