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Market value of gas is to be determined by sales of gas comparable in time, quality, and availability of marketing outlets. This is usually established by opinions from expert witnesses who have evaluated gas sales in a given field and arrived at a price which they consider to represent fair market value at a given time. But that is not the exclusive manner of establishing market value. That which others pay for the same gas from the same well under an annual price redetermination clause is strong evidence of market value.
Appellees, lessors, received royalties on gas sold from wells on their land. Appellant lessee entered into a gas purchase contract with a buyer and added appellees' leases, which obtained an increased price for gas. However, future acceleration was very limited, and appellees' royalties were half the amount soon to be paid by other buyers. The trial court awarded appellees recovery for a sum based on the price paid by other buyers of gas from the same well and ordered that future royalty payments should be based on the price paid by a particular buyer who was subject to annual price redeterminations. Appellant lessee sought review.
Was the trial court correct in ordering that future royalty payments be based on the price paid by a particular buyer?
On appeal, the court reversed the requirement regarding future payments because purchases by one individual buyer were not conclusive as to market price. The court ordered that future royalty payments be made based on market value at the time of sale. The rest of the judgment was affirmed because appellant had a duty to exercise good faith in the marketing of appellees' gas, the evidence supported the finding of appellant's breach, and division orders did not relieve appellant from its duty.