Articles Posted in Energy, Oil & Gas Law

by
Louisville Gas and Electric Company (LG&E) sought a permit authorizing it to discharge certain pollutants into the Ohio River in conjunction with the operation of its recently expended generating facility. The Commonwealth of Kentucky, Energy and Environment Cabinet’s Division of Water issued the permit. The circuit court vacated the permit. The Court of Appeals affirmed. The Supreme Court reversed and reinstated LG&E’s permit, holding (1) in vacating the permit, the circuit court and Court of Appeals misapplied controlling federal law; and (2) the Cabinet’s determination that the LG&E permit should proceed under 40 C.F.R. 125.3(c)(1) was a reasonable interpretation of the regulation. View "Louisville Gas & Electric Co. v. Kentucky Waterways Alliance" on Justia Law

by
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

by
At issue in this case was the apportionment of natural gas severance taxes for purposes of calculating royalties when a producer-lessee severs natural gas from the earth. The Sixth Circuit Court of Appeals certified a question to the Kentucky Supreme Court asking whether Kentucky’s at-the-well rule allows a natural gas processor to deduct all severance taxes paid at market prior to calculating a contractual royalty payment to a royalty owner-lessor based on the market price of gas at the well or whether the resource’s at-the-well price includes a proportionate share of the severance taxes owed such that a processor may deduct only that portion of the severance taxes attributable to accumulating, compressing, processing, and transporting the gas prior to calculating the appropriate royalty payment. The Supreme Court rejected the two options presented and concluded that, in the absence of a specific lease provision apportioning severance taxes, lessees may not deduct severance taxes or any portion thereof prior to calculating a royalty value. View "Appalachian Land Co. v. EQT Prod. Co." on Justia Law

by
The Kentucky Energy and Environment Cabinet denied Kentucky Southern Coal Corporation's (KSCC) application to renew its surface and underground coal mining permit, finding that a bona fide dispute existed over KSCC's right of entry to 18.1 acres within the permit boundaries. The circuit court affirmed the Cabinet's decision, finding that the expiration of a surface lease adjudicated by another circuit court created a bona fide dispute over the rights of KSCC to mine the coal on the 18.1-acre tract. The court of appeals affirmed. The Supreme Court affirmed, holding (1) a bona fide property dispute existed in this case, which the Cabinet had no legal authority to adjudicate; and (2) accordingly, the Cabinet did not err in denying KSCC's renewal permit. View "Ky. S. Coal Corp. v. Ky. Energy & Env't Cabinet" on Justia Law