Today the Ohio Supreme Court accepted review of a certified question from the Northern District of Ohio federal court in a case that is significant to the oil and gas industry in Ohio. The accepted certified question is: “Does Ohio follow the ‘at the well’ rule (which permits the deduction of post-production costs) or does it follow some version of the ‘marketable product’ rule (which limits the deduction of post-production costs under certain circumstances)?” The case, Lutz v. Chesapeake Appalachia, L.L.C., is a putative class action in which the plaintiff-landowners claim that the defendant-producer underpaid gas royalties. The dispute centers on the royalty clauses in the relevant leases and relates to post-production costs—i.e., the costs incurred after gas is produced at the wellhead, such as processing and transportation costs, but before it is sold downstream. More specifically, the question relates to whether the defendant-producer can deduct these post-production costs from the royalty payments owed to the plaintiff-landowners and, if so, how to calculate those deductions. The Ohio Supreme Court’s answer to this certified question will have a wide-ranging impact on Ohio’s oil and gas industry.
The Energy, Utilities, Oil & Gas team at Roetzel will provide updates on this case as events before the Ohio Supreme Court dictate. If you have any questions, please contact any of the listed Roetzel attorneys.View PDF