Federal Court Upholds Fixed-Rate Post-Production Deduction Provision in West Virginia
On August 24, 2017, the United States District Court for the Northern District of West Virginia entered an Order in a royalty deduction class action granting Defendants CNX Gas Company LLC and Noble Energy Inc.'s Motions for Summary Judgment.
The Court examined a 2009 oil and gas lease that expressly excluded all implied warranties and covenants and contained a royalty provision permitting the operator to deduct $1.20 per MMBtu for certain identified post-production costs, which the parties "agreed will be presumed to be actually incurred and reasonable."
The Court held that this lease was unambiguous and also complied with the requirements enumerated in Wellman and Tawney for post-production deductions. In short, the Court upheld the parties’ right to unambiguously contract for post-production deductions and to "freely contract that the flat-rate deductions are 'actually incurred and reasonable'".