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With Recent High Court Ruling, Natural Gas Companies Must Pay Royalties Without Adjusting For Severance Taxes

Are gas royalties being fairly paid to landowners? The Kentucky Supreme Court recently said “No.”

In Kentucky and across the United States, natural gas companies have bought and leased resource-rich land, and in exchange, paying the landowner a percentage of money the gas company makes when it sells the gas extracted from the owner’s land. In a recent ruling, the Kentucky Supreme Court said that gas companies cannot deduct their severance taxes before paying royalties to landowners.

“Because the tax is paid on the price of the gas at the well, and the gas is not sold until after it has been transported from the well, royalties are calculated by mathematically working back from the point of sale to arrive at the wellhead cost, the opinion said. Under this method, the costs of bringing the gas to the surface are not deducted from the sale price, but post-extraction costs such as transportation costs are deducted, the court said.” -Eric Kroh Law 360

Do you have royalty arrangement with a natural gas company? You may be owed a reimbursement or a higher royalty payment in the future.

Contact the attorneys at Whitfield Bryson & Mason LLP to learn more.