Transamerican Natural Gas Corp. v. Finkelstein ( 1996 )

Opinion on Appellants’ Motion for Rehearing En Banc

CHAPA, Chief Justice.

This appeal questions whether a royalty owner is entitled to share in the settlement proceeds arising from the breach of a take- or-pay oil and gas contract when some of the gas not taken is sold on the spot market. The appellants, TransAmerican Natural Gas Corporation and TransTexas Gas Corporation (collectively, TransAmerican), filed a motion for rehearing and motion for rehearing en banc after this court issued its panel opinion of April 3, 1996. We grant Trans-American’s motion for rehearing en banc and deny its motion for rehearing as moot. Furthermore, we withdraw our earlier opinion and substitute this opinion in its place. Although we adopt the panel’s holding regarding TransAmerican’s affirmative defenses, we reject its discussion of TransAmerican’s marketing duty. We reverse and render because a royalty owner is not entitled to settlement proceeds from a take-or-pay contract absent lease language to that effect.

Summary of Facts

In 1974, John R. Stanley, owner of TransAmerican and its predecessors, assigned Hub Finkelstein, an independent oil producer, an overriding royalty interest “equivalent to 1/16 of the net revenue interest” from all mineral rights Finkelstein secured for TransAmeriean.¹ In addition, Finkelstein was required to sell his gas to TransAmeriean under a gas purchase agreement. A year later, Finkelstein arranged for TransAmeriean and El Paso Natural Gas (El Paso) to enter into a farmout agreement for the La Perla Ranch in Zapata County, Texas.² However, Finkelstein was not a party to this contract between TransAmeriean and El Paso. As a result of his prior agreement with TransAmeriean, Finkelstein earned a l/16th overriding royalty interest in the La Perla Ranch, subject to El Paso’s preferential right to purchase.

In 1981, El Paso exercised its preferential purchase right to purchase. It entered into a long-term gas purchase agreement with TransAmeriean, but once again Finkelstein was not a party to the contract. Under this gas purchase contract, TransAmeriean dedicated its entire interest in the La Perla Ranch to El Paso. In exchange, El Paso agreed to take or, if it did not take, pay for 80 percent of the La Perla production for a fifteen-year term. El Paso also received a five-year make-up or recoupment right, which entitled it to later take “gas which it paid for but did not receive” at the delivery price minus the take-or-pay payment.³

In 1983, as a result of sharply declining gas prices, El Paso filed a declaratory judgment action seeking to avoid the take-or-pay provision of its gas purchase contract with TransAmeriean. TransAmeriean counterclaimed for underpayment of gas and for breach of the take-or-pay provision. During that litigation, TransAmeriean continued to sell gas on the spot market for less than the price El Paso had agreed to pay.

Also in 1983, TransAmeriean filed Chapter 11 bankruptcy, and Finkelstein filed an adversary claim for, among other things, unpaid royalties and breach of his gas purchase agreement with TransAmeriean. Finkel-stein’s claims were settled in 1987. The settlement (1) confirmed Finkelstein’s l/16th overriding royalty in the La Perla Ranch; (2) paid Finkelstein for accrued underpaid and unpaid royalties, a portion of which was to come from the still pending litigation with El Paso; and (3) conveyed to Finkelstein an additional 1½ percent overriding royalty in the La Perla field equivalent to “net revenue interest of .015.”

In 1990, after the trial court rendered a $603 million judgment against El Paso, TransAmeriean settled its dispute with El Paso for cash and property valued at $360 million. As part of the settlement, the parties terminated their prior agreements, including the 1975 farmout and 1981 gas purchase contract. As a result, El Paso’s makeup right was terminated. El Paso conveyed its interest in the La Perla Ranch to Trans-American, which, in turn, released its claims and those of its “assigns.” Although Finkel-stein was not a party to the TransAmerican/El Paso contract nor did he participate in their settlement agreement, the settlement terminated his interest in the La Perla Ranch. See Medallion Oil Co. v. Trans-American Natural Gas Corp. (In re GHR Energy Corp.), 972 F.2d 96, 99-100 (5th Cir.1992), cert. denied, 507 U.S. 1042, 113 S.Ct. 1879, 123 L.Ed.2d 497 (1993) (explaining that Finkelstein’s overriding royalty was “washed out” by the termination of TransAmerican’s lease).

Although TransAmeriean paid Finkelstein royalty on the gas it produced and sold on the spot market during its litigation with El Paso, it refused to pay Finkelstein any part of the El Paso settlement. Finkelstein sued TransAmerican to recover royalty on the amount paid by El Paso to settle Trans-American’s “repudiation claim” for gas that TransAmerican produced and sold between October 1, 1987 through December 31, 1989; that is, the date Finkelstein began receiving royalty from TransAmerican under their 1987 settlement agreement and the last date on which Finkelstein owned a royalty interest in the La Perla Ranch. These “repudiation damages” represented the difference between the price under El Paso’s gas purchase agreement and the lower spot market price.

The trial court submitted the case to the jury on Finkelstein’s theories that Trans-American breached its duty to reasonably market and was unjustly enriched. The jury returned a verdict in Finkelstein’s favor on both theories, and the trial court rendered judgment for $8,247,021 in actual damages and $4,458,158 in attorney’s fees. Trans-American appealed; and, in four points of error, challenges the legal and factual basis of Finkelstein’s recovery.

TransAmerican’s Affirmative Defenses

In its third point of error, TransAmerican argues that Finkelstein’s claim is barred by the accord and satisfaction reflected in the 1987 settlement agreement and by res judi-cata. Because these arguments, if successful, would be dispositive of this appeal, we consider them first.

1. Accord and Satisfaction

In points of error 3-A and 3-B, TransAmerican argues that, as a matter of law, Finkelstein’s claim is barred by accord and satisfaction. Alternatively, TransAmerican argues that the jury’s contrary finding is against the great weight and preponderance of the evidence. We review TransAmerican’s sufficiency complaints under the well-established rules for measuring the legal and factual sufficiency of the evidence. See Robert W. Calvert, “No Evidence” and “Insufficient Evidence” Points of Error, 38 Tex. L. Rev. 361, 362-68 (1960). While accord and satisfaction is a question of law reviewed de novo, the parties here disagree over the factual interpretation of the 1987 settlement agreement.

The affirmative defense of accord and satisfaction “rests upon a new contract, express or implied, in which the parties agree to the discharge of the existing obligation by means of the lesser payment tendered and accepted.” Jenkins v. Henry C. Beck Co., 449 S.W.2d 454, 455 (Tex.1969). To prove that a particular agreement rises to the level of an accord and satisfaction, “[t]he evidence must establish an assent of the parties to an agreement that the amount paid by the debtor to the creditor was in full satisfaction of the entire claim.” Id.

TransAmerican’s evidence includes the following sentence taken from the 1987 settlement agreement:

Another $367,000 is due under Adversary Proceeding No. 85-0946-H2-5 if the Debtors prevail in their suit against El Paso Natural Gas for gas sold and delivered, and shall be paid to [Finkelstein] upon receipt by the Debtors of satisfaction of such an award from El Paso.

Lifting this sentence out of context — and disregarding the phrase “sold and delivered”— lends some credence to TransAmerican’s accord and satisfaction argument.

However, when read in context, the sentence refers to Finkelstein’s claims for royalties accrued and unpaid prior to April 1987; the agreement did not purport to settle Finkelstein’s claim to royalties accrued during the period at issue here, i.e., October 1, 1987 through December 31,1989. See Finkelstein v. TransAmerican Natural Gas Corp. (In re TransAmerican Natural Gas Corp.), 127 B.R. 800, 803 (S.D.Tex.1991) (describing TransAmerican’s “contention” as “erroneous. The $367,000 was for gas previously produced from La Perla and for which royalties were owing. The 1987 settlement did not involve royalties to future production.”).⁴

The only evidence that supports any accord and satisfaction argument came from Craig Shephard, TransAmeriean’s former president and chief operating officer. She-phard testified that Finkelstein settled his claim in this litigation when he accepted the additional 1½ percent overriding royalty in the 1987 settlement agreement and released his claims against TransAmerican. Finkel-stein, on the other hand, testified that he received the additional 1½ percent overriding royalty to settle his claim arising out of TransAmerican’s rejection of his gas purchase agreement, and nothing in the 1987 settlement agreement was intended to settle his claim to a royalty interest in TransAmeri-can’s repudiation damages.

The jury found that Finkelstein did not “accept the benefits of the Settlement of April 23, 1987, in satisfaction of all claims he would have arising out of the controversy between El Paso and TransAmerican.” The jury’s answer is supported by the evidence and the unambiguous terms of the agreement. Thus, we overrule TransAmerican’s points of error 3-A and 3-B.

2. Res Judicata

TransAmerican asserts under points of error 3-C and 3-D that Finkelstein’s claim is barred by res judicata, specifically section 1141 of the Bankruptcy Code. According to TransAmerican, section 1141 bars “all issues that could have been raised in connection with ... confirmation” of a plan of reorganization. Finkelstein counters that his claim is not barred because it arose after the date TransAmerican’s reorganization plan was confirmed.

The res judicata effect of a judgment rendered by a federal court is governed by federal res judicata law. See Eagle Properties, Ltd. v. Scharbauer, 807 S.W.2d 714, 718 (Tex.1990). For confirmation of bankruptcy plans, the federal law of res judicata is contained in section 1141 of the Bankruptcy Code, which provides that “the confirmation of a plan ... discharges the debtor from any debt that arose before the date of such confir-motion” 11 U.S.C.A. § 1141(d)(1)(A) (West 1993) (emphasis added).

The bankruptcy court confirmed Trans-American’s plan of reorganization on September 4, 1987. In re TransAmerican Natural Gas Corp., 127 B.R. at 802. Finkelstein’s claim in this litigation arose out of gas produced and sold between October 1, 1987 and December 31, 1989 and settlement monies paid to TransAmerican in early 1990. We agree with the conclusion of the federal district court that Finkelstein’s claim arose after the date of confirmation and is not, therefore, barred by section 1141. See id. at 803. We overrule Trans-American’s points of error 3-C and 3-D.

Breach of the Marketing Duty

In points of error 2-A and 2-B, TransAmerican maintains that, as a matter of law and the weight of the evidence, the trial court erred in rendering judgment against TransAmerican on the jury’s finding that TransAmerican breached its duty to reasonably market Finkelstein’s gas “because an overriding royalty interest owner is not entitled to share in the proceeds from a take-or-pay settlement.”

Regarding the relevant law, the parties agree that actual production triggers the duty to reasonably market, which itself is subdivided into the twin duties of marketing production with due diligence and obtaining the best price reasonably possible. Cabot Corp. v. Brown, 754 S.W.2d 104, 106 (Tex.1987). “Production” means the actual extraction of the mineral from the soil. See Rogers v. Osborn, 152 Tex. 540, 261 S.W.2d 311, 312 (1953). The standard of care is that of a reasonably prudent operator under the same or similar circumstances. Amoco Prod. Co. v. Alexander, 622 S.W.2d 563, 568 (Tex.1981).

Regarding the facts, the parties agree that TransAmerican recovered damages for El Paso’s breach of the take-or-pay contract. They also agree that, between October 1, 1987 and December 31,1989, TransAmerican actually produced and sold on the spot market 84 billion cubic feet of gas from the La Perla Ranch. Finkelstein contends that, given these facts, TransAmerican received two prices for the produced gas: (1) the spot market price; and (2) when it settled with El Paso, the difference between the El Paso contract price and the spot market price. Finkelstein admits receiving royalty on the first and claims his entitlement to receive royalty on the second.

In Bruni I, we answered negatively the question of “whether a standard royalty clause applies to settlement of a take-or-pay provision.” Killam Oil Co. v. Bruni, 806 S.W.2d 264, 266-68 (Tex.App.-San Antonio 1991, writ denied). Finkelstein attempts to distinguish this controlling authority on the basis of production and his royalty clause.

In Bruni I, the Bruni Mineral Trust entered into an oil and gas lease with Killam and Hurd which provided that royalties be paid on production. In pertinent part, the royalty clause stated:

The royalties to be paid by lessee [Killam and Hurd] are: ... (b) on gas, including casinghead gas and all gaseous substances, produced from said land and sold or used off the premises or in the manufacture of gasoline or other product therefrom, the market value at the mouth of the well of one-eighth of the gas so sold or used provided that on gas sold at the wells the royalty shall be one-eighth of the amount realized from such.

Killam Oil Co. v. Bruni, 806 S.W.2d 264, 266 (Tex.App.-San Antonio 1991, writ denied) (emphasis in original).

After entering this lease, Killam and Hurd contracted to sell gas to United Texas Transmission Company (United) under a separate take-or-pay agreement with a five-year make-up right. Id. at 265. Killam sued United when it failed to take or pay, but Killam later settled. Id. Hurd settled without suit. Id. The Trust then sued Killam and Hurd for a share of the settlement proceeds on the basis of a constructive sale under its royalty clause ás well as on theories of breach of the duty to market, breach of the duty of good faith and fair dealing, conversion, fraud, unjust enrichment, and equitable reformation. Id,

In construing the Trust’s royalty claim, we focused on the lease’s requirement that gas be “produced” and “sold,” i.e., severed from the soil. Id. at 267. By this language, “the Trust unambiguously limited its right to royalty payments only from gas actually extracted from the land.” Id. at 268. We concluded that take-or-pay “payments are made when gas is not produced, and as such, bear no royalty.” Id. (emphasis in original). This holding was recently approved by the Texas Supreme Court when it described the take- or-pay payment as compensation “for the exclusive dedication of reserves for a fixed period of time.” The Lenape Resources Corp. v. Tennessee Gas Pipeline Co., 925 S.W.2d 565, 570 (Tex.1996) (citing Bruni I).

As we said in Bruni I, the royalties to which a lessor is entitled must be determined from the provisions of the oil and gas lease. 806 S.W.2d at 266 (citing Texas Oil & Gas Corp. v. Vela, 429 S.W.2d 866, 870 (Tex.1968)). When reading the lease, we give terms their plain, ordinary, and generally accepted meaning and will enforce the unambiguous document as written. Heritage Resources, Inc. v. NationsBank, 39 Tex. Sup. Ct. J. 537, 538-39, — S.W.2d -, - -, 1996 WL 200362 (April 25, 1996).

The 1974 agreement between TransAmeri-ean and Finkelstein provided for “an overriding royalty interest equivalent to 1/16 of the net revenue interest acquired by” Trans-American. The settlement agreement between TransAmerican and Finkelstein included an additional interest:

[TransAmerican] hereby agree[s] to assign and convey to H.S. Finkelstein an overriding royalty interest of one and one-half percent (1%%) of all oil, gas, other hydrocarbons, and all other minerals, whether similar or dissimilar, and including, without being limited to, salt, sulphur, coal, lignite and uranium, produced and saved from or áttributed to the interests owned by [TransAmerican] ... in and to all (i) gas leases, oñ and gas leases, oil, gas and mineral leases ..., (ii) development agreements, joint development agreements, farmout agreements, farmin agreements, contracts to lease, net revenue interest agreements, and, without exception, all other agreements which have as their purpose or will involve or be concerned with the exploration, drilling and/or production of oil, gas and/or other minerals ... and (iii) all other interests in land, including, but not limited to, fee mineral interests, royalty interests, overriding royalty interests, net profits interests, production payments and other similar interests in production of oil, gas and/or other minerals....

(Emphasis added).

Like the lease in Bruni I, Finkelstein’s lease is tied to production.⁵ By this language, Finkelstein unambiguously limited his right to royalty payments from gas actually extracted from the land. See Bruni I, 806 S.W.2d at 268. Additionally, without production, TransAmerican’s duty to reasonably market was not triggered. See Cabot Corp., 764 S.W.2d at 106. Given the particular recitations of this lease for various types of interest, none of which mention take-or-pay contracts, we cannot read the clause “net revenue interest” as including take-or-pay settlements which, by their very nature, are not payments for gas produced. See Danciger Oil & Ref. Co. v. Powell, 137 Tex. 484, 154 S.W.2d 632, 635 (1941) (advising courts not to read into the lease additional provisions). Finkelstein, like the Bruni Trust, could have (but did not) specifically include a provision that allowed for royalty to be paid upon proceeds received from settlements arising from the breach of take-or-pay gas contracts.⁶ Finkelstein enjoyed a position to do exactly that by virtue of his experience in the oil and gas industry and his involvement in the TransAmerican/El Paso negotiations.

Finkelstein maintains that Bruni I is distinguishable because it did not involve gas production where the purchaser lost its right to recoup gas but nonetheless “paid” for the gas sold to third parties through “repudiation” damages. This issue was raised in Bruni I, where the Trust argued that United’s settlement “might have included underpayment for gas sold on the spot market,” 806 S.W.2d at 267, but we declined to address “the Trust’s contention as to what the proceeds might have represented.” Id. at 268.⁷ The underpayment was irrelevant to our analysis because the gas contract was independent of the lease. See id. at 267 (citing Exxon Corp. v. Middleton, 613 S.W.2d 240, 245 (Tex.1981)).

The lessee’s royalty obligations are determined from lease agreements executed prior to and wholly independent of gas purchase contracts. Middleton, 613 S.W.2d at 245. The royalties are fixed and unaffected by the gas contracts. Id. Furthermore, in basic contract terms, there is no privity between the lessor and the purchaser who contracts with the lessee. See id. (holding that market value for royalty purposes must be calculated without reference to the gas contract). As demonstrated by Bruni I, the royalty is typically based on production.

Under the lessee’s separate gas purchase agreement, the purchaser satisfies a take-or-pay provision by either purchasing a specified quantity of gas or paying the producer for the right to purchase that quantity of gas in the future. The Lenape Resources Corp., 925 S.W.2d at 570. “Because of this alternative performance, the pay option under a take-or-pay contract is not a payment for the sale of gas. Rather, it is a payment for the exclusive dedication of reserves for a fixed period of time.” Id. (citations omitted); see also Bruce M. Kramer, Royalty Obligations Under the Gun-The Effect of Take-or-Pay Clauses on Duty to Make Royalty Payments, 39 Inst, on Oil & Gas L. & Tax’n § 5.02 (1988) (detailing several purposes). Thus, the pay option is “made when gas is not produced, and as such, bear[s] no royalty.” Bruni I, 806 S.W.2d at 268; see also Mandell v. Hamman Oil & Ref. Co., 822 S.W.2d 153, 164-65 (Tex.App.-Houston [1st Dist.] 1991, writ denied).

Finkelstein refers to language in Bruni II where we noted “cogent arguments concerning the royalty owner’s interest in take-or-pay settlement funds, especially when, as here, the settlement terminates the purchaser’s recoupment rights.” Hurd Enterprises, Ltd. v. Bruni, 828 S.W.2d 101, 107-08 n. 8 (Tex.App.-San Antonio 1992, writ denied) (where recoupment issue not raised). Our footnote acknowledged that arguments favoring recovery of royalty were based on “[t]he legal issue [of] whether the non-recoupable take-or-pay payment is compensation for past and/or future gas production, or whether it represents payment for the producer having the gas available but not producing it, i.e., storing the gas for the purchaser’s benefit.” 828 S.W.2d at 108 n. 8. This legal issue has been resolved by Lenape’s explanation that take-or-pay payments represent compensation for producing and storing gas, not the mere “pre-payment” of gas suggested by Finkelstein. 925 S.W.2d at 571-72. For this reason, the dicta in Bruni II is not controlling.

For the same reason, the royalty owner, who does not “shoulder the ... risks of exploration, production, and development,” should not share in the take-or-pay payment. Diamond Shamrock Exploration Co. v. Hodel, 853 F.2d 1159, 1167 (5th Cir.1988); see also Bruni II, 828 S.W.2d at 110 (describing risks of lessor and lessee). Thus, Finkelstein cannot share in the right to the settlement proceeds without accepting corresponding duties.⁸

At the heart of Finkelstein’s argument is his miseharacterization of the El Paso settlement as including both “take-or-pay damages” for gas “that was not produced” (of which he disclaims any interest) and “repudiation damages” for “the entire El Paso contract” (of which he claims an interest in that portion representing gas produced and sold on the spot market). El Paso’s lump-sum settlement did not make this distinction, although the underlying case was tried to both the court and the jury, resulting in awards of $67 million and $536 million, respectively.

The former figure represents El Paso’s payment for years in which it took less gas than the 80 percent of production required by the contract (1985 and 1986), and the latter figure represents El Paso’s payment for years in which it took no gas at all (1987 through 1996). This conclusion is supported by jury question number 2, in which the jury found that El Paso breached its contract with TransAmerican “as a whole” by failing to make the prepayment due on January 10, 1987. Question number 6 asked the jury to calculate damages based on the difference between the contract price and the market price, which was defined as the price of gas when the contract was breached. In contrast, the trial court’s findings of fact demonstrate that “take-or-pay damages” were based “on a deficiency.” One amicus curiae suggested that the distinction was one of convenience because past production was readily ascertainable while future production was uncertain.⁹ In short, a breach is a breach. Both awards represent nonproduction — gas not taken or paid for under the gas purchase agreement.

In this case, gas was produced and sold to third parties. El Paso did not take the gas; instead, it was required to pay TransAmeri-can for the dedication of the reserves. The El Paso settlement represents compromise of a dedication claim that existed independently of a lease, as did the settlement in Bruni I, even if TransAmerican allowed El Paso a “credit” for gas TransAmerican sold on the spot market. If TransAmerican’s settlement with El Paso increased the price for gas produced, Finkelstein would receive two royalties on the same gas, a right to which he was not entitled under the terms of his lease. Therefore, the TransAmeriean/El Paso settlement does not “have the effect of increasing the price paid for gas that was taken.” See Bruni I, 806 S.W.2d at 268.

Take or pay is not a benefit which flows from the marketing covenant of a lease. See Mandell, 822 S.W.2d at 165. We therefore hold, as a matter of law, that Trans-American was required to obtain for Finkel-stein benefits related to the sale of gas that was produced and sold on the spot market— gas which, by definition, was not included in El Paso’s take-or-pay settlement. We hold that TransAmerican was not required to share the proceeds of its take-or-pay settlement with Finkelstein. By these holdings, we reaffirm our decision in Bruni I and clarify that a royalty owner, absent specific lease language, is not entitled to take-or-pay settlement proceeds, whether or not gas is sold to third parties on the spot market.

Because we find no breach of the duty to reasonably market, we sustain TransAmerican’s points of error 2-A and 2-B. We therefore find it unnecessary to address its complaints embodied in points of error 2-C and 2-D that legally and factually insufficient evidence supports the damage award for breach of the marketing duty.

Unjust Enrichment

In points of error 1-A and 1-B, TransAmerican argues that the trial court erred in rendering judgment against Trans-American on the jury’s finding that Trans-American was unjustly enriched “because there is no unfairness in holding Finkelstein to his bargain,” that is, the lease agreement.

Unjust enrichment characterizes the result of failing to make restitution for benefits received under circumstances giving rise to an implied or quasi-contract. Allen v. Berrey, 645 S.W.2d 550, 553 (Tex.App.-San Antonio 1982, writ ref'd n.r.e.). There can be no recovery “if the same subject is covered by an express contract.” Lone Star Steel Co. v. Scott, 759 S.W.2d 144, 154 (Tex.App.-Texarkana 1988, writ denied); see also Angelo Broadcasting, Inc. v. Satellite Music Network, Inc., 836 S.W.2d 726, 731 (Tex.App.-Dallas 1992, writ denied); Allen, 645 S.W.2d at 553. We believe this result is particularly appropriate when sophisticated parties, like Finkelstein and TransAmerican, bargain for express contracts. See Mandell, 822 S.W.2d at 160.

We hold that, when Finkelstein entered into his lease with TransAmerican, he agreed to its express terms, and we hold that he was bound by his bargain. Recovery on an equitable theory would, as a matter of law, be inconsistent. See Allen, 645 S.W.2d at 555.

We sustain TransAmerican’s points of error 1-A and 1-B. Accordingly, we decline to address points of error 1-C and 1-D regarding the sufficiency of the evidence supporting the damage award for unjust enrichment.

Attorney’s Fees

Because we sustain portions of Trans-American’s first and second points of error, the fourth point of error concerning Finkel-stein’s recovery of attorney’s fees is necessarily sustained as well. See Angelo Broadcasting, 836 S.W.2d at 736; Bruni II, 828 S.W.2d at 112.

Conclusion

We reverse the trial court’s judgment and render judgment that Finkelstein take nothing from his claim against TransAmerican.

DUNCAN, J., dissents, joined by RICKHOFF and GREEN, JJ.

1 . An overriding royalty is an interest carved out of, and constituting a part of, the working interest created by an oil and gas lease. Gruss v. Cummins, 329 S.W.2d 496, 501 (Tex.Civ.App.-El Paso 1959, writ ref'd r.n.e.).

2 . In a farmout agreement, the owner of the lease assigns the lease or some portion of it to another operator who is willing to drill the tract. Mengden v. Peninsula Prod. Co., 544 S.W.2d 643, 645 n. 1 (Tex.1976) (quoting Williams and Meyers, Oil and Gas Law, Manual of Terms 167 (1971)).

3 .When gas is made up, there is no double payment. Randy King, Note, Royalty Owner Claims to Take-or-Pay Payments Under the Implied Covenant to Market and the Duty of Good Faith and Fair Dealing, 33 S. Tex L. Rev. 801, 826 (1992). The lessor receives royalty on the total funds received by the producer (except for the time-value of the take-or-pay payments). Id.

4 . Citing Thermtron Products, Inc. v. Hermansdorfer, 423 U.S. 336, 352-53, 96 S.Ct. 584, 594, 46 L.Ed.2d 542, 555 (1976), and Missouri Pac. R.R. v. Brown, 862 S.W.2d 636, 639 (Tex.App.-Tyler 1993, writ denied), TransAmerican argues that the federal district court's remand order does not preclude its accord and satisfaction argument because the order is neither final nor appealable. We do not decide this issue because the evidence in this case establishes the factual inaccuracy of TransAmerican's position.

5 . Even given the broad "net interest” language, this production requirement is consistent with the requirement that royalty be calculated after production, whether based on "market value" or "amount realized." See Exxon Corp. v. Middleton, 613 S.W.2d 240, 243 (Tex.1981).

6 . For examples of such provisions, see John S. Lowe, Defining the Royalty Obligation, 49 S.M.U. L. Rev. 223, 238 n. 98 (1996).

7 .Commentators have also described Bruni Jasa proceeds dispute. See, e.g., Michael Pearson & Richard D. Watt, To Share or Not to Share: Royalty Obligations Arising out of Take-or-Pay or Similar Gas Contract Litigation, 42 Inst. on Oil a Gas L. & Tax'n §§ 14.03[2][d], 14.03[3][b][ii] (1991).

8 . As TransAmerican aptly queried, "For if prices had gone up instead of down, would Finkelstein want to share in our losses?”

9 . On rehearing, we received amicus curiae briefs from James N. Castleberry, Jr., Edwin P. Horner, John S. Lowe, and Texas Mid-Continent Oil & Gas Association.