Court of Civil Appeals of OK, Division IV, decided 1/5/2018. The plaintiffs (Pummill and Parrish) sued Hancock Exploration, Cimarex and Chevron (defendants) because the defendants did not bear all costs necessary to create a marketable product, but instead improperly charged expenses against Plaintiffs’ royalty. The Pummill lease read "to pay lessor for gas…sold or used off premises…1/8th of the market price AT THE WELL for gas sold … and the Parish lease read "to pay lessor for gas…1/8th of the GROSS PROCEEDS at the prevailing market rate…The court found “compelling evidence that gas from …the well…is not a marketable product until the field process of gathering, compression, dehydration and processing have occurred at or before the “tailgate” (as it leaves the processing facilities) of the …gas plants.” The appeal court’s CONCLUSION: (1) the gas is not a marketable product at the wellhead (2) defendants failed to sustain their burden of proof under Mittelstaedt case law (3) Defendants may not deduct from Plaintiffs’ royalties the proportionate expenses associated with preparing the gas for sale to an interstate pipeline downstream from the well. This ruling suggests to me that royalty owners should have no post production deductions unless their lease specifically allows such deductions OR operators must PROVE to royalty owners that deductions taken from royalty checks actually improve the price of gas. I’ve heard nothing from NARO about this finding. Comments?
This topic was moved to the NARO category by site administration.
This will never be resolved, too many special interest behind the curtain.