Mesa Operating Limited Partnership v. United States
Fifth Circuit
931 F.2d 318 (5th Cir. 1991)
Federal law required gas lessees on federal land to put minerals into marketable condition and pay royalties based on the gas's value once marketable, without deducting the costs of making it marketable (the Marketable Condition Rule). Separately, FERC's Order 94 series let gas producers charge purchasers above the usual price ceiling to recover certain costs of making gas marketable. The Department of the Interior (DOI) (defendant) interpreted these together to mean that reimbursements gas lessees received under Order 94 had to be included in the lessee's gross proceeds when calculating royalties owed. Mesa Operating Limited Partnership (plaintiff) challenged that interpretation, arguing the Marketable Condition Rule should apply to the final royalty figure itself, not to the production valuation used to calculate it. The district court sided with DOI.
Whether cost reimbursements paid to a gas lessee under the FERC Order 94 series are part of the lessee's gross proceeds for purposes of production valuation.