Split Sales of Gas


  • Robert C. Muir




Energy Law, Petroleum Law


The Natural Gas Industry is highly competitive and once a gas reservoir is discovered the various producers are anxious to enter into Gas Purchase Contracts. The contracts are with different purchasers and on different terms giving rise to split stream deliveries - there would never be any split stream problems if all producers made simultaneous deliveries to one or more purchasers in exactly the same volumes at exactly the same price. This article examines the position of the producers in the gas reservoir in the absence of an agreement and then discusses different contractual methods which the producers may use to resolve the conflict between the Doctrine of Correlative Rights and the Rule of Capture, such as gas market sharing contracts, cash adjustments, gas balancing schemes and deferred production agreements. To further complicate the problems of 'the producer in dealing with split sales of gas, the lessee-producer must keep in mind the interests of the lessor-royalty owner. The article concludes with a consideration of the interest of the royalty owner in the prepayment received by the producer and in the price for which the producer is selling the gas.