The oil or gas that is below the surface of your land makes your property valuable. These natural resources are potential income for you as the property owner, but you lack the equipment and expertise to successfully extract the oil or gas yourself. Instead, you enter a lease agreement with an oil or gas company that allows the oil or gas company to gather the natural resources from your property and to sell them for a profit.
You expect that this lease is going to be financially beneficial for you. The terms of the lease contract explain what royalties, or payments, you will be paid based on the amount of oil and gas that is extracted from your land. You have expectations about the royalties that you will receive, but despite the success of the oil or gas company, you never receive the amount of money that you expected.
If this has happened to you, then you have the right to fight for your fair recovery of damages. However, you should expect that the oil or gas company will fight hard to limit your financial recovery. Accordingly, you may benefit from working with a legal team that can analyze the lease, the production documents, the financial documents, and other evidence to fight for the fair recovery that you deserve. The attorneys of Gray and White law only represent people who have been seriously injured so that we can provide individualized attention to each of our clients. Our financial resources and reputation will allow us to retain the right expert witnesses for your case and our commitment to each client will allow us to fight hard for your full recovery.
Why Aren’t You Getting the Money You Deserve?
The terms of your lease should spell out what royalties you should receive from the oil or gas company. Unfortunately, the oil and gas companies do not always pay property owners the full royalties that they deserve pursuant the lease. Lease royalty disputes can arise if:
- The oil or gas company engages in unfair accounting practices that reduce your royalties.
- The oil or gas company charges excessive expenses to you, the landowner.
- The oil or gas company is negligent or sloppy in its accounting and makes an error.
- The oil or gas company is routinely late in paying you.
- There is a dispute between you and the oil or gas company about the fair market value of the gas or oil that is extracted from your property.
- There is a dispute between you and the oil or gas company about how much gas or oil came from your property.
- There is a dispute between you and the oil or gas company about the costs of production, processing, or transporting
Any one of these factors could prevent you from getting the fair payments that you deserve pursuant to your lease agreement with the oil or gas company.
Kentucky Law Supports Fair Payments
On August 20, 2015, the Kentucky Supreme Court issued two opinions that could help property owners get the fair royalties that they deserve. Specifically, the Kentucky Supreme Court ruled that:
- Kentucky’s “at the well” rule determines how royalty payments should be paid to property owners. In Baker v. Mangum Hunter Production, Inc., the Court found that production costs associated with taking gas from the ground should not be subtracted from the sales price when calculating landowners’ royalties. However, post-production costs that are incurred between the time the gas is taken from the ground and the time the gas reaches the wellhead may be subtracted from the sales price when calculating royalties.
- The producer taking the natural gas from the property is solely responsible for the severance tax payment unless there is a specific provision in the lease that establishes how the severance tax payments should be divided between the lessor and lessee. In Re: Appalachian Land Co. v. EQT Production Company, the Court found that if the lease says nothing about severance tax payments, then the gas company may not deduct any money for severance taxes from the royalties that are to be paid to the property owner.
The issue in the case was that the lease provided that the gas company should pay the landowner a royalty interest in the gas at the rate of “1/8 the market price of gas at the well.” In this case, the property owner alleged that the gas company was not using the price “at the well” and that instead the gas company was taking the price of gas “downstream” at an interstate pipeline connection, after the gas had been transported and processed, and calculating back to an “at the well” price before paying royalties to the property owner. When making the calculations back, the gas company was subtracting processing costs, transportation costs, and severance taxes and then paying the property owner 1/8 of what was left. The Court found that this was unfairly denying the property owner royalties.
These opinions are not the only ones that could impact your recovery of royalties. Previous opinions, contract law, and other legal doctrines could also impact your recovery.
What Can You Do to Be Paid Fairly?
You deserve to pay be paid fairly according to the terms of the contract that you entered with the oil or gas company. However, if you are not receiving the royalties that you deserve, then you will need to take action by contacting an experienced attorney to help you investigate the lack of payments and to hold the oil or gas company accountable. The oil or gas company is looking to maximize its profits and it has a team of attorneys, accountants, and other experts working to do just that. You will need to gather evidence and fight for the recovery that you deserve. If you would like to discuss how our experienced lawyers can help you do that, please contact us any time, day or night, at 888-450-4456 to schedule a free, no-obligation consultation.
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