Co-author Ethan Wood

In Johnson et al vs. Chesapeake et al, unit operator Chesapeake deducted post-production costs (gathering, compression, treatment, processing, transportation and dehydration) from non-operating, unleased mineral  owners’ share of production proceeds. The UMO’s (so-called by the court) sued. The federal district court concluded that La. R.S. 30:10(A)(3) governs the dispute, and post-production costs could not be recovered from the UMO’s share of production proceeds.
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Co-author Chance Decker

 Burlington Resources Oil & Gas Company, LP. v. Texas Crude Energy, LLC et al is another chapter in the back-and-forth over deduction of post-production costs from royalty payments. In “clarifying” (royalty owners might say “retreating from”) Chesapeake Exploration & Production, LLC v. Hyder, the Texas Supreme Court held that a royalty delivered into the pipeline or tanks is akin to a royalty delivered “at the wellhead.” The lessee was entitled to deduct post-production costs from its royalty calculation, notwithstanding that the calculation was based on the “amount realized” from downstream sales.

Don’t read too much into it?
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Consider this while celebrating the resurrection of Big Tex: When a lease prohibits post-production cost deductions, can a lessee deduct those costs from a lessor’s royalty? Yes, says Potts v. Chesapeake Exploration, L.L.C. In a market value lease, where lessee sells the gas “at the well” and the court applies the netback approach to calculating