a major victory to landowners in Ohio. In The Grissoms, LLC v. Antero Resources Corporation, 133 F.4th 605 (6th Cir. 2025), the United States Court of Appeals for the Sixth Circuit determined that costs that Antero Resources Corporation (Antero) was deducting from landowners’ royalty payments were impermissible. Recall that the royalty clause in question is what is commonly referred to in the industry as the Market Enhancement Clause (MEC), which states: Market Enhancement Clause. It is agreed between the Lessor and Lessee that, notwithstanding any language contained in A) and B) above, to the contrary, all royalties or other proceeds accruing to the Lessor under this lease or by state law shall be without deduction directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas and other products produced hereunder to transform the product into marketable form; however, any such costs which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be proportionally deducted from Lessor’s share of production so long as they are based on Lessee’s actual cost of such enhancements. However, in no event shall Lessor receive a price per unit that is less than the price per unit received by Lessee. Prior to analyzing the legal merits, the Court offered a thorough recitation of Antero’s operations and how it moves oil and gas from any given wellhead in Ohio to different points of sale. The Court explained that Antero first pulls the raw mixture of water, sand, oil and gas out of the ground and through the wellbore to the wellhead and initially separates or filters out the sand to produce three separate streams of product: oil, unrefined gas, and water (which it disposes of). While the oil is sold at this point and transported away via truck, the unrefined gas must undergo additional operations in order for Antero to sell it. At this second stage of the operational process, Antero gathers the unrefined gas, compresses and dehydrates it, and transports it to a third-party processing plant (MarkWest), which results in the gas being separated into mostly methane gas on the one hand and a mixture of other gases (i.e., ethane, propane, etc.) known as Y-Grade on the other. Methane gas is sold to markets at this point and landowners are paid royalties on such sales, but the valuable Y-Grade mixture is required to undergo further work at a third stage. Indeed, at this stage, MarkWest must fractionate the Y-Grade into its component parts, namely hydrocarbons like ethane (C2), propane (C3), or butane (C4). Once fractionated, Antero is able to sell these component parts by train or pipeline. Under the MEC, Antero charged royalty owners with their proportionate share of costs incurred in the above-described operational stages. Specifically, Antero deducted costs for (a) processing, which is when the methane gas was separated from the Y-Grade, (b) fractionation, which is where the Y-Grade was separated into its component hydrocarbon parts, and (c) transportation, which were costs incurred for distributing the final products. The plaintiffs argued that the processing and fractionation costs were prohibited under the MEC. The Court agreed. In doing so, the Court observed that Antero could only deduct costs under the MEC from “marketable” products,

and that even if such costs enhanced an already marketable product, Antero could not deduct that cost if it was required to make yet another, transformed product marketable. The Court defined a “transformed product” as being “marketable” when it is “[o]f commercially acceptable quality; fit for sale and in demand by buyers.” With this definition in mind, the Court determined that neither the processing costs or fractionation costs were chargeable to the landowners under the MEC. As for the processing costs, the Court stated: While there is an existing market and a futures market for methane, there are no such markets for a methaneethane-propane-butane-natural gasoline mixture of unknown proportions. Separating the non-methane gases from the methane is essential to transform one gas product (purified methane) into marketable form. Transmission pipelines, notably, do not accept natural gas with too many non-methane gas products. Antero thus purifies the mixture of various gases for sales of methane through these pipelines. Only after stage two, not stage one, does this marketable product come into creation. Similarly, for the fractionation costs incurred at the third stage, the Court determined: The unseparated Y-Grade mixture of various gases is not suitable for buyers in the main. Only after Antero and its affiliates separate the streams may the products be transported to “downstream end users.” Without fractionation, the Y-Grade is a mixture of several gases of unknown quantity. Antero has not presented any evidence that this unseparated product is a commodity that a traditional end user would find useful. So far as the record shows, there is no established market for “Y-Grade” mixture, as opposed to, say, butane and natural gasoline. Thus, the Court held that because “the market realities of this operation all show that ‘processing’ and ‘fractionation’ are essential parts of transforming the unrefined gas into marketable natural gas and of transforming the Y-Grade nonmethane gas mixture into marketable gas products (ethane, propane, butane, and natural gasoline),” Antero could not deduct such costs from owners’ royalties. This case emphasizes the importance of scrutinizing your royalty statement in relation to the royalty clause in your lease. What may appear at first glance to be permissible – certainly to the untrained eye – may be prohibited and result in the “loss” of significant sums of royalties. I strongly advise that landowners contact an oil and gas attorney to obtain a professional review of your royalty payments, particularly if you have a lease subject to the aforementioned MEC. That simple call could lead to recovery of a large sum of money that you were entitled to receive. To that end, landowners should be diligent and proactive, particularly in Ohio where landowners must generally commence an action for payments of their oil and gas royalites within four years after the breach (O.R.C 2305.041).