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Independent Since 1959
NEWS
January 2021
GO-WV Board Members Announced Ben Sullivan of Diversified Gas & Oil Corporation and Tom Westfall of Mountaineer Gas Corporation will be serving as co-presidents of the newly formed Gas and Oil Association of WV, Inc.(GO-WV). Other members of the GO-WV board, in alphabetical order, are: Maribeth Anderson, Antero Resources Corporation; John Bane, EQT Corporation; Jim Crews, MPLX;
Carrie Crumpton, CNX Resources Corporation; Ryan Cunningham, Cunningham Energy, LLC; Doug Douglass, Reserve Oil & Gas Inc.; Kevin Ellis, Antero Resources Corporation; Jon Farmer, Arsenal Resources; Michael Forbes, Greylock Energy; Marc Halbritter, Blue Racer Midstream; David Haney, D.G. Haney, Inc.; Holly Hannold, XTO Energy Inc.; Ben Hardesty,
Alta Energy; Jason Harshbarger, Eastern Gas Transmission & Storage; Jon Hildreth, Roy G. Hildreth & Son, Inc.; Paul Hunter, Williams; Jess Isner, Pillar Energy, LLC; Lloyd Jackson, Jackson Management Company; Brittant LaPorta, TC Energy; Rhett Metz, Energy Transfer; Christine Mitchell, Dominion Energy; Kelly Moss, Apex Pipeline Services, Inc; GO-WV Board Continued on page 9
Fourth Circuit Court Provides Industry Win On December 1, 2020, the Fourth Circuit Court of Appeals gave a significant victory to our industry with its decision in Young v. Equinor, Appeal No. 19-1334. In its opinion, the Fourth Circuit held that the method of calculating the deduction of post-production expenses stated in Equinor’s lease with the Youngs satisfied the third prong of the test set out in the 2006 Tawney decision by the West Virginia Supreme Court of Appeals. Tawney established a three-prong test to determine the enforceability of a clause allowing the deduction of post-production expenses in the calculation of royalties. In order to satisfy each prong of this test, a royalty clause must include: (1) an express statement that expenses are deductible; (2) a specific description of each type of deductible expense; and (3) a description of the method used to calculate the amount of expense to be deducted. The royalty clause in the Equinor lease states “[t]o pay Lessor on all volumes of gas actually sold from said land, fourteen percent of the
net amount realized by Lessee, computed at the wellhead.” In considering the method of royalty calculation, the Fourth Circuit observed that the reality of modern gas sales requires the deduction of post-production expenses from the value-added downstream price. According to the Court, this “work back” method of royalty calculation prevents lessors from unfairly increasing their royalty stream without bearing their proportionate share of the costs necessary to achieve the highest downstream sale value. The Fourth Circuit concluded that the third component of the Tawney test may be satisfied by a straight-forward formula identifying which and how much of the post-production expenses are deducted from the royalty calculation. A lease complies with this standard if it includes provisions that identify the following: • Royalty rate. • Pool of gross sales proceeds used in the royalty calculation.
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Lessee’s proportionate ownership of the pool of gross sales proceeds. • Specific categories of post-producWilliam Herlihy tion expenses Spilman Thomas deducted & Battle, PLL from the gross sales proceeds to determine the net amount subject to the royalty. • Deducted expenses are reasonable and actually incurred. Appellees may file a request that the Fourth Circuit reconsider its Equinor decision by December 29, 2020. Alternatively, they may file a notice of appeal before December 31, 2020. If Appellees do not chose either alternative, then this decision by the Fourth Circuit becomes final and binding. The full decision may be accessed by clicking on the following link: Young v. Equinor.
INSIDE
Ben Sullivan / 2 Jeff Isner / 3, 5 Charlie Burd / 4 Michael Forbes / 6 Industry Events / 6 Kathy Hill / 7 PTTC Events / 7 Tim Bigler / 9 Greg Kozera / 10 Thomas Downs / 11 Industry News / 13 Mark Clark / 14 Advertising Contract / 16-17
