San Antonio appeals court addresses construction of a mineral lease's "Most Favored Nations" clause

In EP Energy E&P Co., L.P. v. Storey Minerals, Ltd., No. 04-19-00534-CV, 2022 WL 223253 (Tex. App.—San Antonio Jan. 26, 2022, no pet. h.), the Fourth Court of Appeals construed a "most favored nation" clause in a mineral lease. As explained in footnote 2 of the memorandum opinion, "A most-favored-nations clause typically provides a lessee who pays higher royalties or bonuses per net mineral acre on nearby leases must match the higher royalties or bonuses under the subject lease." The issue in EP Energy was whether the MFN clause at issue also applied prospectively to higher-paid bonus amounts.

The panel, in a 2-1 decision, ruled the MFN clause did not apply prospectively to future bonus payments. Justice Chapa authored the memorandum opinion, and construed the provision in context of other provisions of the mineral lease. Chief Justice Martinez concurred in the judgment only. Justice Valenzuela dissented and would have held that the MFN clause applied prospectively to bonus payments and would have given the addendum to the lease more weight in construing the MFN clause.