Law360 covered the Chesapeake Energy Corp. royalty dispute that has the potential to clarify whether mineral rights owners can break from tradition and enter agreements letting them off the hook for post-production costs. Chesapeake recently appealed the 4th Circuit Court of Appeals ruling that held two of its subsidiaries, Chesapeake Exploration LLC and Chesapeake Operating Inc., liable to plaintiff Martha Hyder and family members for approximately $1 million. The court stated that while the general rule in Texas makes overriding royalties like those the Hyders owned subject to post-production costs, the family's lease shifted the burden to Chesapeake of paying for post-production activities like transferring and delivering the gas.
Gardere Trial Partner Rhonda Reed Weiner told the publication that she lives with the issue daily. For one client, she's reviewed 60 leases for the purpose of evaluating whether the operator gets to deduct post-production costs, and from that group, she saw 45 variations in the terms the parties used. "If Hyder gets upheld, we will know how to modify the general rule and what language will be sufficient to modify the general rule," said Ms. Weiner. "These leases, post-Heritage are all over the place. There's no case law interpreting a good deal of the leases we have and whether or not the leases can be read as an exception to the general rule."
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