The Texas Supreme Court heard oral arguments Feb. 5 about a significant issue of Texas oil and gas law. The primary issue in Occidental Permian Ltd. v. French is this: Can gas companies share the cost of removing injected carbon dioxide (CO2) as a part of enhanced recovery operations with royalty owners as a postproduction cost? Or is the cost is actually a production cost that gas companies cannot deduct from royalty owners’ share?
Although gas companies have utilized enhanced recovery technology for decades, the court hasn’t considered whether to value the quality of casinghead gas for royalty payment purposes in the highly diluted state involved in this case (containing nearly 90 percent injected, extraneous CO2) or in its native gas state (containing less than 2 percent CO2).
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