Baker v. Magnum Hunter Prod., Inc.

Two sets of landowners brought suit seeking damages and a declaration of their rights under oil and gas leases executed with with predecessor to an oil and gas producer. Additionally, the landowners sought a declaration that the lessee production companies had miscalculated and underpaid royalties due under the leases. Specifically, the landowners claimed that the lease provision basing their royalty on “one-eighth the market price at the well” should be understand to contemplate the sale of gas made “marketable” and then “sold at the well.” The trial court rejected these claims and dismissed the landowners’ complaint. The court of appeals affirmed, concluding that the trial court did not err in ruling that given royalty provisions such as those in the leases at issue here, Kentucky law does not embrace the “marketable product” approach to royalty calculation. The Supreme Court affirmed, holding that, for the purposes of gas lease royalty valuation under standard “market price (value) at the well” royalty clauses, the lessee is solely responsible for the costs of production, but post-production costs may be deducted from gross receipts before the calculation of the royalty share. View "Baker v. Magnum Hunter Prod., Inc." on Justia Law