A royalty pain in the gas: What costs may be properly deducted from a gas royalty interest?
It is emphasized that parties contracting for oil and gas leases are always free to allocate the costs of compression, transportation and processing in their agreements, thereby avoiding many potential problems. However, it must be recognized that all too often lease agreements fail to apportion expenses that may be incurred after the discovery of oil or gas. In the likely event that the West Virginia courts are faced with this issue, they would be wise to adopt the implied duty to market theory, thereby, putting the onus on the lessee to either provide up front in the lease for the apportionment of costs after the discovery of the gas, or in those instances where the lease is silent as to who will incur the cost, to place the burden on the lessee to cover those costs. Regarding transportation costs, even in jurisdictions such as Oklahoma, where the lessee is obligated to develop the gas he has found so that it will bring the highest possible market value, the lessee is not required to provide for pipeline facilities beyond the lease premises. Kansas courts have also held that the lessee has a general duty to see that the gas is marketed, but that it is not required to pay the lessor`s share of transportation charges form the well to some distant place. Thus, in West Virginia when a gas lease is silent as what costs a lessee may properly deduct from a lessor`s royalty payment, the lessee should bear the costs under the implied duty to market theory if those costs do not involve enhancing the product or transporting it to some place of sale off the leased premises.
- OSTI ID:
- 376882
- Journal Information:
- West Virginia Law Review, Vol. 98, Issue 4; Other Information: PBD: Sum 1996
- Country of Publication:
- United States
- Language:
- English
Similar Records
Tax advantages of a deferred minimum annual royalty provision in oil and gas leases
Costs deductible by the lessee in accounting to royalty owners for production of oil or gas