WV Supreme Court Robs Mineral Owners

Started May 27, 2017 at 09:13 am by @Perrylkeaton in Marcellus Shale

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05/27/17 09:13:56AM
Joe Fabeetz
05/30/17 12:06:49AM @joe-fabeetz:

Oil or gas at the wellhead cannot for the most part be used until it is transported and treated.  When gas was deregulated by the Carter administration each owner was given the option to take their gas in kind, meaning take title to their royalty or working Interest volumes and sell them to a purchaser of their choice negotiating their own price and deal.  By doing so, the take in kind owner takes the responsibility for the cost of doing so.  If the owner does not elect to take it in kind, then the energy company bears the cost passing its share to the royalty owner.  These are post production costs and the royalty owner would have to pay anyway if they took it and sold it.  So it seems reasonable. But what is not reasonable is for the energy company to sell it to an affiliate at less than prevailing price and pay royalties on the reduced price.  Nor is it reasonable to charge excessive marketing and transportation costs over and above typical costs in that geography.  Perhaps the WVa legislature would consider limiting the allowable post production cost to a reasonable, prevailing level and disallowing the less than arms length transactions.

05/30/17 01:10:36PM @pete:
That is why they have put the wording ;gas in kind; into the newest leases so they can get away with the deductions... royalty as gas in kind
Joe Fabeetz
05/30/17 06:05:16PM @joe-fabeetz:

You have, by law, the option (not the obligation) to "take your gas in kind".  That law was created to protect royalty owners from being forced into a contract at a price below market and being paid royalties on the lower price. Those costs occur regardless of who pays.  You should be considering if the deductions are truly "post-Production" and if so are they unreasonably high.

PP deductions must be to "enhance" production.  If the deduction is for a process, service or equipment that is necessary for any production, then it is a "production" cost and not deductible.  For example, if a compressor is in the system to increase production it is deductible.  If it is necessary for any production it is not deductible.  

Of course, if you (or your supposedly knowledgeable attorney) had added a "no deductions of any kind" clause to your lease in the first place, the problem would be moot.

05/31/17 10:50:49AM @pete:
I thought I did pretty good for what I put in there and for 7 years never had a problem until the producer was bought out... how do they read things into a lease that didn't need to be addressed when it was written.. how do you get deductions from market value??? Lawyers ????
Joe Fabeetz
06/01/17 12:13:16AM @joe-fabeetz:

Don't beat yourself up over it. It's not what they put in a lease as much as what the RO doesn't put in or what they don't put in that defaults in their favor. Remember that most RO's are amateurs competing with the Landman who is a professional.  Attorneys find ways to interpret things differently as times change.  At this point the best you can do is hope the WVa legislature makes sure that deductions must be reasonable and that sales are arms length.  Also you could consult a knowledgeable attorney to determine if your lease could be invalidated by any action or payment taken or not taken by the producer.  If so, you may want to get cancelled or you may not depending on the current prices in your area.  7 years ago you may have gotten a better deal even with the deductions than you could on a new lease today.  But if you do decide to go that route get a professional attorney and negotiator on your side to go against their pro.  




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