Duty to Market
The signing of an oil and gas lease leads to a contract between a landowner and an oil and gas company. This lease is strongly rooted in contract law and property law and contains several implied duties which the oil and gas company must comply with, including the duty to market. Royalty owners and landowners allow oil and gas companies the use of their land for an extended period of time, but hope to receive some type of compensation out of the arrangement. If the oil and gas company has breached any of these implied duties, the owner may have a cause of action.
The Duty to Market Oil & Gas Interests
Contained within the oil and gas lease is the implied duty to market at fair market value. However, it can be tricky to determine whether there is a duty to sell to a specific purchaser. This type of decision will most likely be made on a case by case basis and courts must examine each unique case considering all aspects of the surrounding circumstances. Therefore, it may be difficult to determine whether an oil and gas company breached a duty to market from first glance. Therefore, an inquiry into a potential breach of duty to market often requires extensive research into the surrounding oil and gas market in the area and the current sale price of oil and natural gas.
The implied duty to market essentially means that the oil and gas company must seek for and find the best available price for sales of oil or natural gas. If the landowner or royalty owner discovers that the oil and gas company is not complying with this implied duty (for example, through the use of previous contracts with purchasers that drastically lower the price in exchange for bulk purchase), the owner may sue for damages due to the breach of this duty to market.
Damages are often proved through the potential sale that “could have been” if the oil and gas company had complied with this duty to market. Therefore, upon bringing a case against the oil and gas company, a royalty owner must be equipped with statistics and figures of comparable sales. An experienced oil and gas attorney can assist you in researching the potential value of oil and gas assets or the current market activity in your area. You should not lose out on terms of your oil and gas lease because the company is not being active enough in their pursuits.
Malley Law Firm | Houston Oil and Gas Attorney
If you have any questions regarding the duty to market or believe an oil and gas company has breached their duty to market, do not hesitate to contact the Malley Law Firm. Tony Malley has years of experience in handling breaches of duties of oil and gas companies, and is well versed in Texas law pertaining to oil and gas leases. Contact our Beaumont or Houston office today for your initial free consultation.