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Mesa Operating Limited Partnership v. United States

United States Court of Appeals for the Fifth Circuit
931 F.2d 318 (5th Cir. 1991)


The U.S. Department of the Interior’s (DOI) (defendant) longstanding Marketable Condition Rule provided that gas lessees of federal lands must put minerals in marketable condition and pay royalties based on the value of the gas in such marketable condition. The rule did not allow lessees to deduct the costs to convert the gas into marketable condition before calculating royalties. The Federal Energy Regulatory Commission (FERC) had a price ceiling for gas sales. In its Order 94 series, the FERC promulgated regulations allowing gas producers to charge purchasers more than the price ceiling in order to recover certain costs to make gas marketable. DOI interpreted the regulations to call for inclusion of this cost recovery in a lessee’s gross proceeds for purposes of production valuation and resulting royalty payments. Mesa Operating Limited Partnership (Mesa) (plaintiff) appealed the DOI’s interpretation decision. Mesa argued that the Marketable Condition Rule applied to the final, calculated royalty amount itself, rather than the production valuation from which the royalty is calculated. The district court ruled in favor of the DOI. Mesa appealed.

Rule of Law


Holding and Reasoning (Brown, J.)

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