Yzaguirre v. KCS Resources, Inc.

When royalty payments are based on market value under an oil and gas lease in Texas, the lessee owes royalties based on the price of gas on the open market, even though the gas was actually sold for less than this price under a long-term sales contract. Texas Oil & Gas Corp. v. Vela, 429 S.W.2d 866, 871 (Tex.1968). In this case, we must decide whether the open-market price is still the correct measure under such a lease when the lessee sells the gas for more than market value under a long-term sales contract. The royalty owners argue that the lessee breached express and implied duties by…