Frey v. Amoco Production Co.

Frederick Frey (plaintiff) leased oil and gas interests to Amoco Production Company (defendant) at a one-fifth royalty on the amount Amoco realized at the well from gas sales. Amoco's gas-sales contract with a purchaser, Columbia, included a take-or-pay provision letting Columbia either buy a set amount of gas annually or pay a minimum value for gas it declined to take, and Amoco later received a $66.5 million settlement from Columbia tied to that provision. Frey sued for royalties on the settlement amount; Amoco argued no royalty was owed because a take-or-pay payment doesn't involve an actual sale of gas, the district court agreed with Amoco, the Fifth Circuit reversed, and on rehearing certified the royalty question to the Louisiana Supreme Court.