Replies to This Discussion

Permalink Reply by Jack Straw on June 6, 2012 at 11:41pm

CR, believe it or not, there is a Fayette Couty PA and there is a Fayette County OH - and amazingly, there is a Fayette County WV.

That Fayette fellow sure got around!

It is not odd that they named all these counties after the illustrious Marie-Joseph Paul Yves Roch Gilbert du Motier, Marquis de La Fayette (aka Lafayette) - but why did they name the counties Fayette and not Marie-Joseph Paul Yves Roch Gilbert du Motier County?

Which state are you located in?

Whichever state you are in, I do not have any knowledge that would help.

Perhaps you could start a Discussion asking for recommendations for an Attorney in the appropriate County and State.

Good luck, and please do let us know how it turns out.

JS

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Permalink Reply by CR-FayetteCounty on June 7, 2012 at 5:08am

Aha! Yes; I do know this about the county names! Thanks fro the reminder. I am in PA - the one near a historical home of the LaFayettes! I will begin a discussion as you suggested.

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Permalink Reply by bungalow_steve on June 7, 2012 at 9:20am

There was a PA court ruling recently that allows deductions at the market sale price, they be invoking that (rightly or wrongly), some gas companies have been retroactively applying this law

http://law.psu.edu/_file/aglaw/Natural_Gas/Kilmer_v_Elexco_Land_Ser...

Basically the ruling says you get gross royalties "at the wellhead" not gross royatlies at the market sale price.

This means when the gas company gets $4/mcf at market sale price (after post proprocessing) the can compute what the gas is worth at your wellhead, say $3, so they deduct $1 from there market price to get wellhead price, then they give you 12.5% of that with no deductions. (so it's gross royalty at the wellhead, but net of the market price).

 So there are two question, is it gross or net, and gross or net at what point, the wellhead or the market sale price.

 Lots of landowners (and gas lawyers unfortunately), are fooled by this (the lease says gross, but when they get the royalty check they are loaded with  legal deductions). Some of big landowner group leases in PA unfortunately did not take this into account.

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Permalink Reply by Jim Shoos on June 7, 2012 at 11:24am

Bungalow... what you have represented is inaccurate.  First of all, the case you referenced dealt with a lease royalty provision based upon proceeds of the sale price... that specifically allowed for the proportionate deduction of post production expenses.   If you have a lease that specifically disallows the deduction of any post production expenses then the Elexco case has no application whatsoever as a precendent.  The lease provisions will trump any outside interpretations unless they are deemed to be ambiguous.  A clear and concise royalty clause does not require court intervention. 

The Elexco case dealt with a royalty clause that allows deductions of post production expenses and... and there was absolutely no ambiguity or argument from the lessor otherwise... the lessor merely asserted that by allowing these deductions from his 1/8th royalty the lessee was in violation of the State Minimum Royalty Law.  The court held that the poorly worded State Minimum Royalty Law was not violated when it allowed these deductions.

There may in fact be companies that have lease royalty provisions that are either exactly the same as that involved in the Elexco case, or very similar, and out of a fear that the minimum royalty act was possibly violated, these companies chose not to deduct post production costs that they otherwise were entitled to deduct by the lease terms.  When the Elexco case was handed down these companies were then "free and clear" to deduct these post production costs without fear of it invalidating their leases... but it wasn't done because the Elexco case somehow converted the leases into something they weren't. 

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Permalink Reply by bungalow_steve on June 7, 2012 at 12:06pm

Never said they did. Just saying the ruling might apply to an old lease the original poster seems to have.

(You missed the entire point of the case, the final ruling was 1/8 royalty State Minimum MUST be met, no deductions. The landowners wanted 1/8 royalty at the market price, the company disagreed and wanted 1/8 at the wellhead. The courts agreed with the company and the landowners got 1/8 at the wellhead, no deductions. No lease language can overide that)

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Permalink Reply by Jim Shoos on June 7, 2012 at 2:14pm

Bungalow... I suggest you go re-read the Supreme Court ruling.  The appellant was the lessor who lost to the gas company on a summary judgment at the trial court level.  The Supreme Court affirmed the decision of the trial court... meaning that the gas company was allowed to deduct post production costs from the royalty share and by doing so did NOT violate the state minimum royalty provision. 

What the court stated... and I quote:    we hold that the GMRA should be read to permit the calculation of royalties at the wellhead, as provided by the netback method in the Lease, and thus, affirm the trial court’s grant of summary judgment to the Gas Companies. 

The court stated that the GMRA should be read to permit the calculation at the wellhead.  The court wasn't ruling on the legality of the wording in the lease other than to say that "sales proceeds" can be calculated at the wellhead (which, if the actual sale wasn't made at the wellhead, is simply an implied value which would essentially be the point of sale price, less all of the post production costs incurred in getting the gas to the true point of sale).

If a lease has defining language which specifies what the point of sale is for purposes of paying royalties and further specifies that there are to be no deductions to the lessor's royalty for any of the post production costs incurred in reaching the point of sale then that is an enforceable arrangement and no court in the world is going to contradict that contractual arrangement... assuming that the lease does provide for the statutory 1/8th.

Permalink Reply by bungalow_steve on June 7, 2012 at 3:01pm

Shoos

Trial Court "The parties are, therefore, free to negotiate how that royalty shall be
calculated, so long as the net result is not less than one-eighth.”

 

what part of this opinion don't you understand?

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Permalink Reply by Jim Shoos on June 7, 2012 at 4:37pm

...apparently I understand it a whole lot better than you do.  Of course with 35 years of oil and gas law experience, that's to be expected.

"As the case presented the trial court with a pure question of law regarding the requirements of the GMRA, both parties filed motions for summary judgment.  In March 2009, the trial court granted summary judgment in favor of the Gas Companies and denied Landowners’ motion for summary judgment".

"The court concluded that there were no issues of material fact and that the GMRA does not preclude the parties from utilizing the net-back method of royalty calculation".

You have to understand oil and gas law as well as the unstated logic behind the Supreme Court decision...which is that there is absolutely no practical difference in terms of a monetary outcome when you say that the 1/8th royalty, when based upon an "off lease point of sale" which deducts from the royalty share their proportionate share of post production expenses that give rise to a higher sales price, versus backing out all those same post production expenses to arrive at an imputed value at the wellhead... net/net, the result is the same... and yes, as I stated in my previous post, the statutory 1/8th is a requirement.

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