Texas Oil and Gas Attorney Blog
An interesting case was decided a few months ago by the Federal District Court for the Western District. That case is YMC Royalty Co. LP v WPX Energy Permian LLC, 2026 WL 2211771 (W.D. Texas 2026).
YMC had signed a lease with WPX’ predecessor. The lease provided for lease termination in the event of nonpayment of royalty. WPX deducted a “gathering fee” from the royalties it paid YMC. YMC claimed these were not allowed by the lease and demanded a refund of all deductions from royalties. In its demand letter, YMC wrote that “the lease will terminate in 30 days from this notice date unless WPX complies with its express obligations under the Lease.” WPX refunded the gathering fees and claimed they had been deducted due to an accounting error. Next, YMC filed suit, claiming the lease had terminated because WPX had not paid royalty on plant fuel and flared gas and had made improper deductions on NGLs.
First the Court held that an underpayment constitutes a nonpayment of royalties under the lease. However, YMC in its demand letter failed to specify the deductions that it claimed were not authorized by the lease. YMC simply sent a very general demand letter. As a result, the Court held that there had been no lease termination.
This case illustrates how important it is to examine the specific language of a lease before taking action on an alleged default.