Corder v. Antero Resources Corporation et al
Filing
242
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE PLAINTIFFS MOTION FOR SUMMARY JUDGMENT DKT. NO. 210 AND DENYING ANTEROS MOTION FOR SUMMARY JUDGMENT DKT. NO. 207 . Signed by Senior Judge Irene M. Keeley on 5/12/21. (mh)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
GERALD W. CORDER,
Plaintiff,
v.
ANTERO RESOURCES CORPORATION,
Defendant.
CIVIL ACTION NO. 1:18CV30
(Judge Keeley)
c/w 1:18CV31, 1:18CV32,
1:18CV33, 1:18CV34, 1:18CV35,
1:18CV36, 1:18CV37, 1:18CV38,
1:18CV39, and 1:18CV40
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
These
consolidated
cases
involve
claims
for
breach
of
contract related to royalty payments for natural gas interests.
The plaintiffs, Gerald W. Corder, Marlyn Sigmon, Garnet Cottrill,
Randall N. Corder, Janet C. Packard, Leroy Packard, Lorena Krafft,
Cheryl Morris, Tracy Bridge, Angela Nicholson, Kevin McCall, and
Brian McCall (collectively “the Plaintiffs”), own several mineral
interests in Harrison County and Doddridge County, West Virginia
which have been leased, assigned, or otherwise acquired by the
defendant, Antero Resources Corporation (“Antero”). They contend
that Antero has improperly deducted post-production costs from
royalty payments due them under certain oil and gas leases (“the
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
Leases”) (Dkt. No. 240 at 35). 1 Id. Antero denies these allegations
(Dkt. No. 39).
Pending before the Court are the parties’ cross-motions for
summary judgment. As the Court turns to the issues raised in these
motions, it is important to emphasize that, at its core, this case
raises questions about whether the language of the parties’ various
leases is specific enough under West Virginia law to permit Antero
to allocate a portion of the costs it incurs to manufacture natural
gas and valuable natural gas liquids (“NGLs”) to the Plaintiffs,
or if Antero is solely responsible for bearing such costs. For the
reasons that follow, the Court GRANTS IN PART the Plaintiffs’
Motion for Summary Judgment (Dkt. No. 210), and DENIES Antero’s
Motion for Summary Judgment (Dkt. No. 207).
I.
A.
Background
Factual History
1.
The Leases
The Plaintiffs and Antero are parties to several leases
covering the following tracts of land, each of which contains a
separate royalty provision (Dkt. No. 240 at 24-26). 2
Unless otherwise noted, citations to docket entries herein refer
to Civil Action No. 1:18CV30.
2 These leases are attached to the Plaintiffs’ third amended
complaints as Exhibits 2 through 9 (Dkt. Nos. 240-2, 240-3, 2404, 240-5, 240-6, 240-7, 240-8, 240-9).
1
2
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
(A) 48.69 acres – Lease 2
There are several leases covering this tract, which all
require Antero to pay the Plaintiffs royalties
on gas, including casinghead gas or other gaseous
substance, produced from said land and sold or used
beyond the well or for the extraction of gasoline or
other product, [in] an amount equal to One-Eighth
(12.5%) (amended to be 15%) of the net amount realized
by Lessee computed at the wellhead from the sale of such
substances
(Dkt. No. 240-2).
(B)
50.82 acres – Lease 3
The lease covering this tract requires Antero “to pay oneeighth (1/8) of the value at the well of gas from each and every
gas well from which is marketed and used off the premises” (Dkt.
No. 240-3).
(C)
54.18 acres – Lease 4
The lease covering this tract requires Antero “to pay oneeighth (1/8) of the value at the well of the gas from each and
every well drilled on said premises, the product from which is
marketed and used off the premises, said gas to be measured at a
meter set on the farm” (Dkt. No. 240-4).
(D)
104.75 acres – Lease 5
The lease covering this tract requires Antero to pay royalties
for “all gas produced, saved, and marketed from the Leased Premises
3
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
equal to one-eighth of the price received by the Lessee from the
sale of such gas. Said payments shall be paid to Lessors monthly
for all natural gas for which Lessee receives payment during the
preceding calendar quarter” (Dkt. No. 240-5).
(E)
59 acres – Lease 6
The lease covering this tract requires Antero to pay
1/8 of the gross proceeds received from each and every
well drilled on said properties providing natural gas,
an amount equal to one-eighth (1/8) of the gross proceeds
received from the sale of same at the prevailing price
for gas at the well, for all natural gas saved and
marketed from the said premises
(Dkt. No. 240-6).
(F)
105 acres – Lease 7
The lease covering this tract requires Antero to pay
1/8 of the gross proceeds received from each and every
well drilled on said properties providing natural gas,
an amount equal to one-eighth (1/8) of the gross proceeds
received from the sale of same at the prevailing price
for gas at the well, for all natural gas saved and
marketed from the premises
(Dkt. No. 240-7).
4
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
(G) 44.4 acres – Lease 8 3
The lease covering this tract requires Antero to pay “$100
per year for each and every gas well obtained on the premises”
(Dkt. No. 240-8).
(H)
50 acres – Lease 9 4
The lease covering this tract requires Antero
to pay MONTHLY Lessors’ proportionate share of the oneeighth (1/8th) of the value at the well of the gas from
each and every gas well drilled on the premises, the
product from which is marketed and used off the premises,
said gas to be measured at a meter set on the farm, and
to pay monthly Lessors’ proportionate share of the oneeighth (1/8th) of the net value at the factory of the
gasoline and other gasoline products manufactured from
casing head gas
(Dkt. No. 240-9).
2.
The Settlement Agreement
Several of these Leases have been amended by a Confidential
Settlement Agreement and Release of All Claims (“the Settlement
Agreement”), which Antero and the plaintiffs, Gerald W. Corder,
Randall N. Corder, Lorena Krafft, Cheryl Morris, Tracy Bridge,
Angela Nicholson, Kevin McCall, and Brian McCall (“the Settling
Randall Corder’s interest in this tract was sold by tax sale deed
dated January 29, 2002 (Dkt. No. 39-1).
4 Janet and Leroy Packard’s interests in this tract was sold by
tax sale deed dated October 29, 2009 (Dkt. No. 39-2).
3
5
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
Plaintiffs”), 5 entered into in August 2015 (Dkt. Nos. 47 at 7-10;
50). The Settlement Agreement terminated a partition action filed
by Antero against the Settling Plaintiffs in the Circuit Court of
Harrison County, West Virginia. 6 See Dkt. No. 50 at 1.
In addition to the tracts affected by the partition suit, the
Settlement Agreement acknowledged that the Settling Plaintiffs
owned interests in numerous other properties located throughout
Harrison County. Id. at 2. Those properties were identified on a
Master Property List (“MPL”) attached to the Settlement Agreement.
Id. Pursuant to the Settlement Agreement, the Settling Plaintiffs
released all claims and potential claims against Antero relating
in any way to the partition action, or to the properties listed on
the MPL, that arose prior to the execution of the Settlement
Agreement. Id. 2-3, 6-7.
Paragraph 14 of the Settlement Agreement provides:
Antero acknowledges that per the terms of said June 29,
1979 leases identified in the preceding two paragraphs,
production royalties payable pursuant to said leases
shall be deemed gross royalties and shall be calculated
without
regard
to
any
postproduction
or
market
enhancements costs claimed or incurred by Antero.
Plaintiffs Marilyn Sigmon, Garnett C. Cottrill, Janet Packard,
and Leroy Packard were not parties to the Settlement Agreement.
6 Pursuant to W. Va. Code § 37-4-1, et seq., Antero and its coplaintiff sought allotment or partition of the Settling
Plaintiffs’ mineral interests in certain tracts of land located in
Harrison County, West Virginia (Dkt. No. 50 at 1).
5
6
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
Id. at 5.
Paragraph 11 of the Settlement Agreement, however, required
the Settling Plaintiffs to execute the same lease modifications
for all of the properties identified on the MPL. Id. at 4. These
included each of the Plaintiffs’ properties at issue here, except
for the 50-acre tract located in Doddridge County, West Virginia,
identified in this case as Tract H (Dkt. Nos. 47 at n.7; 210-2).
Accordingly, the lease modification, labeled “Exhibit D” to the
Settlement Agreement, applies to the Settling Plaintiffs’ leases
related to Tracts A though G (hereinafter “Leases 2 through 8”),
and its terms are relevant to the issues in dispute here. Id.
Included in the modification of these leases is a Market
Enhancement
(Gross
Proceeds)
Clause
(“the
Market
Enhancement
Clause”) that provides as follows:
It is agreed between the Lessor and Lesee that
notwithstanding any language herein to the contrary, all
oil, gas or other proceeds accruing to the Lessor under
this lease or by state law shall be without deduction,
directly or indirectly, for the cost of producing,
gathering, storing, separating, treating, dehydrating,
compressing, processing, transporting, and marketing the
oil, gas and other products produced hereunder to
transform the product into marketable form; however, any
such costs which result in enhancing the value of the
marketable oil, gas or other products to receive a better
price may be deducted from Lessor’s share of production
so long as they are based on Lessee’s actual cost of
such enhancements. However, in no event shall Lessor
7
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
receive a price that is less than, or more than, the
price received by Lessee
(Dkt. Nos. 50 at 21). 7
3.
Flow of Plaintiffs’ natural gas and NGLs
Under the Leases, Antero produces natural gas from nine (9)
wells located on the Plaintiffs’ properties (Dkt. No. 180-2 at 5).
After the minerals are drawn to the surface, they stream into a
production unit where they are separated into oil, gas, and water.
Id. at 3. Well meters gauge the volume and chemical composition of
the
gas
stream
before
it
enters
gathering
pipelines
and
is
aggregated for delivery into larger pipelines (Dkt. Nos. 180-2 at
3; 210-4 at 3). The Plaintiffs’ gas may flow into one of two larger
pipelines, either (1) the ECT Bobcat pipeline, an interstate
pipeline that transfers unprocessed gas to downstream markets, or
(2) a pipeline that transfers unprocessed gas to the Sherwood Gas
Processing Plant. 8 Id.
Gas from the Plaintiffs’ properties contains NGLs, which can
be extracted from the gas (Dkt. No. 180-2 at 5-6). If Antero
processes the Plaintiffs’ gas, it is transported to the Sherwood
Gas
Processing
Plant,
where
the
NGLs
are
separated
from
the
This lease modification is also attached to the Plaintiffs’
Leases regarding Tract A (Dkt. No. 240-2).
8 The Sherwood Gas Processing Plant is owned by MarkWest Liberty
Midstream & Resources (Dkt. No. 180-2 at 11).
7
8
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
“residue gas” 9 (Dkt. No. 180-2 at 9, 14; 210-4 at 4). The NGLs are
then fractionated into individual products and sold on the market
(Dkt. No. 180-2 at 6-7; 210-4 at 3-4).
The parties dispute whether the gas from the Plaintiffs’
properties must be processed before it may enter an interstate
pipeline and be transported to the point of sale. According to
Antero, it may elect to sell the Plaintiffs’ gas on the market in
its raw form or to process the gas if the processed gas and by
products would be more profitable (Dkt. No. 180-2 at 10). The
Plaintiffs, however, deny that their gas can be sold in its raw
form and contend it must be processed to separate the NGLs before
it is sold on the market (Dkt. No. 185 at 9).
The parties disagree about whether Antero has ever sold the
Plaintiffs’
gas
in
its
raw
form,
or
if
it
has
consistently
processed their gas and sold both the residue gas and NGLs for
profit.
Antero
concedes
that,
prior
to
August
2018,
it
had
processed some or all of the Plaintiffs’ gas to manufacture NGLs
(Dkt. No. 180-2 at 9). Since then, however, it has sold the
Plaintiffs’ gas only in its raw form (Dkt. No. 180 at 12). The
Antero asserts that, even if the Plaintiffs’ gas enters the
pipeline leading to the Sherwood Gas Processing Plant, it is not
necessarily processed because the unprocessed gas may bypass the
processing plant and pass directly to the market (Dkt. No. 180-2
at 9).
9
9
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
Plaintiffs vigorously dispute this contention and assert that
Antero has continued to process their gas and manufacture NGLs for
sale (Dkt. No. 210-4 at 9-10).
4.
Antero’s calculation of royalty payments
According to Antero, when the gas is sold in its unprocessed
form, the Plaintiffs are not charged any processing costs and it
does
not
deduct
the
costs
for
dehydrating,
compressing,
or
gathering the unprocessed gas for delivery into the ECT Bobcat
pipeline (Dkt. No. 180-2 at 10-12). In these circumstances, the
Plaintiffs receive no NGL revenue (Dkt. No. 180 at 12). Rather,
Antero calculates their royalty payments based on the “weighted
average sales price [(“WASP”)] for the unprocessed gas produced
from Plaintiffs’ wells.” Id.
However, when it does process the Plaintiffs’ gas, Antero may
charge them a portion of the processing costs depending on the
relevant lease’s royalty provision. Id. at 11-12. Antero computes
its royalty payments on the greater of (1) the revenues it receives
from
the
sale
of
NGLs
attributable
to
each
well
minus
a
proportionate share of the related processing and fractionation
costs (net factory value), or (2) the value of the MMBtu content
of the Plaintiffs’ raw gas converted to NGLs in the processing and
fractionation at the WASP it receives for its sale of residue gas
10
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
(shrink value) (Dkt. Nos. 207-8 at 3-4, 180 at 13). When the net
factory value exceeds the shrink value, Antero pays royalties on
the
net
factory
value,
which
includes
a
deduction
for
the
Plaintiffs’ proportionate share of processing and fractionation
costs (“PRC2 costs”). Id. But if the shrink value exceeds the net
factory value, Antero pays royalties on the shrink value. Id.
According to Antero, this calculation results in the Plaintiffs
being “paid on the greater of the net factory value or the shrink
value on a well by well and month by month basis” (Dkt. No. 180 at
13).
Antero also sells the Plaintiffs’ residue gas at markets that
are either in-basin or out-of-basin. Id. at 17. To determine
whether it will allocate to the Plaintiffs a portion of the costs
of
transporting
residue
gas
to
out-of-basin
markets,
Antero
compares the in-basin and out-of-basin price indexes to determine
if the out-of-basin sale resulted in a higher price. Id. at 14. If
the out-of-basin WASP exceeds the in-basin WASP, Antero deducts
transportation costs (“TRN3 costs”) up to the limit of the more
favorable price in calculating the netback price paid to the
Plaintiffs. Id. If the in-basin WASP exceeds the out-of-basin WASP,
and
Antero
could
have
received
11
more
money
by
selling
the
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
Plaintiffs’ residue gas in-basin, it does not include TRN3 costs
in its calculation of the Plaintiffs’ royalty payments. Id.
The Plaintiffs’ case is much more straightforward. Neither
the Settlement Agreement nor the Leases permit Antero to deduct
any post-production costs under any formula from their natural gas
or NGL royalty payments (Dkt. No. 210-1 at 1-2).
II.
A.
Discussion
Standard of review
Under Federal Rule of Civil Procedure 56(a), “[t]he court
shall grant summary judgment if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “A dispute
is genuine if a reasonable jury could return a verdict for the
nonmoving party,” and “[a] fact is material if it might affect the
outcome of the suit under the governing law.” Jacobs v. N.C. Admin.
Office of the Courts, 780 F.3d 562, 568 (4th Cir. 2015) (quoting
10A CHARLES A. WRIGHT
ET AL.,
FEDERAL PRAC. & PROC. § 2728 (3d ed. 1998)).
Therefore, courts “view the evidence in the light most favorable
to the non-moving party” and refrain from “weighing the evidence
or making credibility determinations.” Lee v. Town of Seaboard,
863 F.3d 323, 327 (quoting Jacobs, 780 F.3d at 568-69).
12
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
A motion for summary judgment should be granted if the
nonmoving party fails to make a showing sufficient to establish
the existence of an essential element of his claim or defense upon
which he bears the burden of proof. Celotex v. Catrett, 477 U.S.
317, 323 (1986). That is, once the movant shows an absence of
evidence on one such element, the nonmovant must then come forward
with evidence demonstrating there is indeed a genuine issue for
trial. Id. at 323-24. The existence of a mere scintilla of evidence
supporting the nonmovant’s position is insufficient to create a
genuine issue; rather, there must be evidence on which a jury could
reasonably find for the nonmovant. Anderson v. Liberty Lobby, 477
U.S. 242, 252 (1986). Summary judgment “should be granted only in
those cases where it is perfectly clear that no issue of fact is
involved and inquiry into the facts is not desirable to clarify
the application of the law.” Charbonnages de France v. Smith, 597
F.2d 406, 414 (4th Cir. 1979) (citing Stevens v. Howard D. Johnson
Co., 181 F.2d 390, 394 (4th Cir. 1950)).
“When faced with cross-motions for summary judgment, the
court must review each motion separately on its own merits ‘to
determine whether either of the parties deserves judgment as a
matter of law.’” Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th
Cir. 2003) (quoting Philip Morris Inc. v. Harshbarger, 122 F.3d
13
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
58, 62 n.4 (1st Cir. 1997)). “When considering each individual
motion, the court must take care to ‘resolve all factual disputes
and any competing, rational inferences in the light most favorable’
to the party opposing that motion.” Id. (quoting Wightman v.
Springfield Terminal Ry. Co., 100 F.3d 228, 230 (1st Cir. 1996)).
B.
Applicable Law
“A federal court exercising diversity jurisdiction is obliged
to apply the substantive law of the state in which it sits.” Volvo
Const. Equip. N. Am. v. CLM Equip. Co., Inc., 386 F.3d 581, 599600 (4th Cir. 2004) (citing Erie R.R. Co. v. Tompkins, 304 U.S.
64, 79 (1938)). Under West Virginia law, “[a]n oil and gas lease
is both a conveyance and a contract.” Syl. Pt. 2, Ascent Res. Marcellus, LLC v. Huffman, 851 S.E.2d 782 (W. Va. 2020). Thus,
contract law principles also apply to oil and gas leases. K&D
Holdings, LLC v. Equitrans, L.P., 812 F.3d 333, 339 (4th Cir. 2015)
(citing Energy Dev. Corp. v. Moss, 591 S.E.2d 135, 143 (W. Va.
2003). In West Virginia, a claim for breach of contract requires
proof of the formation of a contract, a breach of the terms of
that contract, and resulting damages. Sneberger v. Morrison, 776
S.E.2d 156 (W. Va. 2015).
In order to prevail on their breach of contract claims, the
Plaintiffs must establish:
14
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
(1) The existence of a valid, enforceable contract;
(2) That it performed under the contract;
(3) That the opposing party breached or violated its duties
or obligations under the contract; and
(4) That it was damaged or injured as a result of the breach
or violation.
Richards v. EQT Production Co., 2018 WL 3321441 (N.D.W. Va. July
5, 2018). Antero, on the other hand, must establish the inverse of
at least one of these elements. Id.
The parties’ motions address four categories of claims: (1)
the Settling Plaintiffs claims related to Leases 2 through 7, the
leases for the tracts listed on the MPL and thereby subject to the
Settlement Agreement; 10 (2) the Non-Settling Plaintiffs claims
related to Leases 2 through 7, which are unencumbered by the
Settlement Agreement; (3) all of the Plaintiffs’ claims related to
Lease 9, the tract not included on the MPL and not subject to the
Settlement Agreement’s terms or the Market Enhancement Clause; and
(4) all of the Plaintiffs’ claims related to Lease 8, the flat
rate lease.
Common to each category is the question whether the parties’
contract
permits
Antero
to
deduct
post-production
or
market
Although the tract related to Lease 8 is included in the MPL and
arguably is also subject to the Settlement Agreement, the Court
will address the claims arising from this lease separately because,
as a flat rate lease, it raises substantially different questions
from those involving the leases governed by the Settlement
Agreement.
10
15
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
enhancement costs from the Plaintiffs’ royalty payments for
natural gas and NGLs. Each category, however, raises separate
questions of law and fact. 11
With regard to the first category of claims, the parties
dispute what effect, if any, the Settlement Agreement has on the
royalty provisions contained in Leases 2 through 7. To resolve
this issue, the Court must first address whether the terms of the
parties’
agreement,
Settlement
as
Agreement,
contained
in
and
Market
the
Leases
2
through
Enhancement
7,
the
Clause,
unambiguously state the parties’ intent. If the terms in these
three documents can be reconciled to show the parties’ unambiguous
agreement,
the
Court
must
determine
whether
the
contract
is
governed by the decisions of the West Virginia Supreme Court of
Appeals in Tawney v. Columbia Natural Resources, 633 S.E.2d 22 (W.
Va. 2004), and Wellman v. Energy Resources, Inc., 557 S.E.2d 254
(W. Va. 2001). If this is so, the Court must determine if the
parties’
contractual
language
specifically
permits
Antero
to
deduct costs from the Plaintiffs’ royalty payments.
To resolve the second and third categories of claims, the
Court similarly must address whether the Leases that were unaltered
Notably, the Plaintiffs have moved for judgment only on the
first category of claims, while Antero has sought judgment on all
four categories.
11
16
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
by the Settlement Agreement are governed by and comply with the
requirements of Wellman and Tawney.
Regarding the fourth category of claims, the Court must
determine whether West Virginia law governing flat rate leases
allows Antero to deduct post-production costs from the Plaintiffs’
royalty payments. And if so, the question then arises whether
Antero actually deducted reasonable post-production costs.
C.
Settling Plaintiffs’ royalty interests under Leases 2
through 7
The Plaintiffs contend that the Settlement Agreement and the
Market Enhancement Clause that modified Leases 2 through 7 prohibit
Antero from deducting post-production costs or market enhancement
costs from their natural gas and NGL royalty payments (Dkt. No.
210-1). Antero asserts that the Leases authorized any deductions
it has taken from the Plaintiffs’ royalties (Dkt. No. 207 at 823). Alternatively, it contends that the Plaintiffs have suffered
no damages because it has overpaid them for their natural gas and
NGL royalties. Id. at 24-25.
1.
The terms of the parties’ leases are ambiguous.
The Court must first determine whether any terms of the
parties’ leases are ambiguous. “A valid written instrument which
expresses the intent of the parties in plain and unambiguous
language is not subject to judicial construction or interpretation
17
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
but will be applied and enforced according to such intent.” Syl.
Pt. 1, Contiga Dev. Co. v. United Fuel Gas Co., 128 S.E.2d 626 (W.
Va. 1962). Where contractual language is ambiguous, however, it
must be construed before it can be applied. Haynes v. Daimler
Chrysler Corp., 720 S.E.2d 564, 569 (W. Va. 2011). Whether a
contract is ambiguous is a question of law determined by the court.
Syl. Pt. 1, Berkeley County Pub. Serv. Dist. v. Vitro Corp. of
Am., 162 S.E.2d 189 (W. Va. 1968).
“Contract
language
is
considered
ambiguous
where
an
agreement's terms are inconsistent on their face or where the
phraseology can support reasonable differences of opinion as to
the meaning of words employed and obligations undertaken.” Syl.
Pt. 6, State ex rel. Frazier & Oxley, L.C. v. Cummings, 569 S.E.2d
796 (W. Va. 2002); see also Williams v. Precision Coil, Inc., 459
S.E.2d 329, 342 n.23 (W. Va. 1995) (“A contract is ambiguous when
it is reasonably susceptible to more than one meaning in light of
the surrounding circumstances and after applying the established
rules of construction.”).
“The overriding endeavor in the judicial construction of a
lease agreement is to ascertain and give effect to the mutual
intent of the signatory parties.” Bruce McDonald Holding Co. v.
Addington, Inc., 825 S.E.2d 779, 785 (W. Va. 2019). In doing so,
18
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
courts rely on several canons of construction. First, an oil and
gas lease is interpreted and construed as of the date of it is
executed. Syl. Pt. 4, Ascent, 851 S.E.2d at 783. It is also
generally “construed in favor of the lessor, and strictly as
against the lessee.” Syl. Pt. 5, Energy Dev. Corp., 591 S.E.2d
135. As with other contracts, leases are “not to be construed in
a
vacuum,
but
are
to
be
read
in
their
context.”
Chesapeake
Appalachia, L.L.C. v. Hickman, 781 S.E.2d 198, 213 (W. Va. 2015).
And the construing court must consider the language of the lease
as a whole, “giving effect, if possible, to all parts of the
instrument. Accordingly, specific words or clauses of an agreement
are not to be treated as meaningless, or to be discarded, if any
reasonable meaning can be given them consistent with the whole
contract.” Syl. Pt. 3, Moore v. Johnson Serv. Co., 219 S.E.2d 315
(W. Va. 1975).
If there is ambiguity in the contract, the court may consult
extrinsic evidence “to discern what the parties intended the rights
and obligations of the agreement to include.” Covol Fuels No. 4,
LLC v. Pinnacle Min. Co., LLC, 785 F.3d 104, 112 (4th Cir. 2015)
(citing Payne v. Weston, 466 S.E.2d 161, 166 (W. Va. 1995)).
Determining
the
parties’
intent
“through
extrinsic
evidence
become[s] a question of fact, rather than a question of law.” Id.
19
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
Here, the Court must determine whether the royalty provisions
in Leases 2 through 7, the terms of the Settlement Agreement, and
the language in the Market Enhancement Clause, when construed as
a whole, can be interpreted to form an unambiguous contract between
the
parties.
As
discussed
above,
the
August
2015
Settlement
Agreement specifically altered the parties’ previous agreements as
to Leases 2 through 7. The original royalty provisions in those
leases were silent as to post-production costs. See Dkt. Nos. 2402, 240-3, 240-4, 240-5, 240-6, 240-7. In Paragraphs 12, 13, and 14
of the Settlement Agreement, Antero concedes that Leases 3 and 4
“shall be deemed” gross royalty leases and the Plaintiffs’ royalty
payments
“shall
be
calculated
without
regard
to
any
post-
production or market enhancement costs claimed or incurred by
Antero” (Dkt. No. 50 at 4-5).
Paragraph 11 of the Settlement Agreement, however, requires
the Settling Plaintiffs to modify the leases for all of the
properties listed on the MPL, except for Tract H (Dkt. Nos. 50 at
4; 47 at n.7). Accordingly, the lease modification applies to
Leases
2
through
7.
This
modification
contains
the
Market
Enhancement Clause, which clearly states that, despite any other
term of the parties’ agreement, its provisions are controlling
20
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
(Dkt. No. 50 at 21). Both parties assert that this clause is
unambiguous, but they interpret it differently.
As
a
threshold
matter,
the
Court
notes
that
the
Market
Enhancement Clause actually includes two distinct provisions. The
first
prohibits
Antero
from
deducting
any
costs
incurred
to
“transform[] [oil, gas, and other products] into marketable form”
(“the Gross Proceeds Provision”). Id. The second permits Antero to
deduct costs for enhancing a product already in marketable form
(“the Enhancement Provision”). Id.
According to the Plaintiffs, the Market Enhancement Clause
requires Antero to pay royalties on the “gross selling price of
the gas and each of the NGLs produced from [their] mineral estates”
(Dkt. No. 210-1 at 6). Specifically, they assert (1) that the Gross
Proceeds Provision requires Antero to bear the costs of getting
“other products” in the Plaintiffs’ raw gas “into marketable form;”
(2) that NGLs are “other products” as the term is used within the
Gross Proceeds Provision; and (3) that NGLs reach their “marketable
form” only after they are separated from the residue gas and become
individual purity products. Id. at 8. The Plaintiffs therefore
contend that the Gross Proceeds Provision prohibits Antero from
deducting any costs it incurs to extract NGLs and fractionate them
into individual purity products. Accordingly, they contend the
21
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
Enhancement Provision is inapplicable to their NGL royalty
payments because it is only triggered if Antero increases the value
of NGLs once in their marketable form. Id. at 8-9.
Antero, in contrast, contends that the Market Enhancement
Clause allows it to deduct a portion of the costs incurred to
manufacture NGLs from the Plaintiffs’ NGL royalty payments (Dkt.
No. 180 at 8-9). According to Antero, “other products,” as that
term is used in the Gross Proceeds Provision, is a catch-all term
that does not encompass NGLs. Id. at 10-11. Rather, the NGLs are
part of the Plaintiffs’ raw gas that is already marketable in its
unprocessed form, and any effort by Antero to increase the price
of the Plaintiffs’ raw gas, including separating and fractionating
the NGLs, is an “enhancement” for which the Plaintiffs must share
a portion of the costs under the Enhancement Provision. Id.
That the Plaintiffs and Antero disagree as to the meaning of
the Market Enhancement Clause does not render it ambiguous if the
parties’ intent is clear when its provisions are read in pari
materia. Syl. Pt. 3, Moore, 219 S.E.2d 315. Taken together, these
two provisions unambiguously distinguish between costs arising
from actions taken to transform the product into marketable form,
which are not deductible, and costs resulting in enhancing the
value of the gas to receive a better price, which are deductible.
22
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
Although the parties clearly intended to differentiate
between
these
indicate
when
costs,
the
Antero’s
Market
efforts
Enhancement
become
Clause
enhancing
fails
rather
to
than
transforming. This transition hinges on what the parties intended
to include as “oil, gas, and other products,” and when those
products
become
marketable.
Neither
“other
products”
nor
“marketable form” are defined in either the Settlement Agreement
or the Market Enhancement Clause. To Antero, NGLs are not “other
products”
and
the
Plaintiffs’
raw
gas
is
marketable.
To
the
Plaintiffs, NGLs are “other products” and only residue gas and
NGLs are marketable. Whether the parties intended to include NGLs
as “other products” within the Market Enhancement Clause for which
Antero bears the manufacturing costs, or intended to exclude NGLs
as “other products” and thereby require the Plaintiffs to share
the
cost
of
extracting
and
fractionating
NGLs,
are
material
questions of fact that remain unclear. The Market Enhancement
Clause therefore is ambiguous in material respects.
2.
Wellman and Tawney apply to Leases 2 and 7.
To analyze the impact of the Market Enhancement Clause on the
leases at issue, the Court must weigh the applicability, if any,
of Wellman and Tawney. Under West Virginia law, oil and gas lessees
have an implied duty to market the gas produced. Wellman, 577
23
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
S.E.2d at 265. Included in this duty is “the responsibility to get
the oil or gas in marketable condition and actually transport it
to market.” Tawney, 633 S.E.2d at 27. Accordingly, unless a lease
for royalty payments “provides otherwise, lessees must deliver the
gas to the market, in a marketable condition, free of all costs of
production.” W.W. McDonald Land Co. v. EQT Prod. Co., 983 F. Supp.
2d 790, 803–04 (S.D.W. Va. 2013), opinion clarified (Jan. 21,
2014).
For the lessee to deduct any post-production costs from a
lessor’s royalty payments, the lease must expressly allocate such
costs to the lessor and the lessee must prove that the costs were
actually incurred and reasonable. Wellman, 577 S.E.2d at 265. To
rebut the presumption that the lessee bears all post-production
costs, the lease must (1) “expressly provide that the lessor shall
bear some part of the costs incurred between the wellhead and the
point of sale;” (2) “identify with particularity the specific
deductions that the lessee intends to take from the lessor’s
royalty;”
and (3) “indicate the method of calculating the amount
to be deducted from the royalty for such post-production costs.”
Tawney, 633 S.E.2d at 30.
Antero concedes that Leases 2 and 5 are gross proceeds leases
to which Wellman and Tawney apply (Dkt. No. 207-1 8, 22). But, as
24
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
it did in its earlier motion to dismiss, Antero again asserts that
Wellman’s
presumption
and
Tawney’s
heightened
specificity
requirements do not apply to Leases 3, 4, 6, or 7. These leases
appear to require royalty payments based on the market price
received by Antero from the sale of the Plaintiffs’ minerals due
to either of the following clauses: (a) “value at the well,” or
(b) “gross proceeds received from the sale of the same at the
prevailing price.” Antero argues that the holdings in Wellman and
Tawney do not apply because the royalty provisions at issue are
based on “market value” rather than “proceeds” (Dkt. No. 207-1 at
20). In support, it relies on Imperial Colliery Co. v. Oxy USA
Inc., 912 F.2d 696 (4th Cir. 1990), where the Fourth Circuit
reasoned that post-production deductions are a permissible way to
arrive at the “wholesale market value at the well.”
As this Court has previously observed, 12 however, the Supreme
Court
of
Appeals
in
Tawney
rejected
a
similar
argument.
The
defendant in Tawney had asserted that “wellhead-type language
clearly called for allocation of post-production expenses” when
read in conjunction with language such as “gross proceeds,” “market
price,” or “net of all costs.” Tawney, 633 S.E.2d at 28-29. Due to
inherent ambiguities, the Supreme Court of Appeals concluded that
12
See Dkt. No. 29 at 21-22.
25
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
none of these modifiers was sufficient to overcome Wellman’s
presumption that the lessee must bear post-production costs. Id.
Following that reasoning, this Court concludes that the “market
value” provisions in Leases 3, 4, 6, and 7 are not sufficient to
escape the dictates of Wellman and Tawney. 13
3.
The Market Enhancement Clause
Antero to take deductions.
does
not
permit
According to Antero, the language of the Market Enhancement
Clause meets the heightened specificity requirements under Tawney
for allocating to the Plaintiffs a portion of the costs incurred
to enhance their gas to receive a better price on the market. The
Market Enhancement Clause clearly satisfies Tawney’s first prong
by providing that costs incurred by Antero to enhance the products
extracted from the Plaintiffs’ property to receive a better price
“may be deducted” from the Plaintiffs’ royalty payments (Dkt. No.
50 at 21).
It also appears to satisfy Tawney’s third prong, as it states
that enhancement costs “may be deducted from Lessor’s share of
The Court also observes that this conclusion is supported by the
decision in Leggett v. EQT Production Co., 800 S.E.2d 850 (W. Va.
2017). There, while distinguishing between flat rate oil and gas
leases governed by statute and all other oil and gas leases
governed by common law, the Supreme Court of Appeals noted that
“freely-negotiated leases . . . remain subject to the holdings of
Wellman and Tawney.” Id. at 869.
13
26
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
production so long as they are based on Lessee’s actual cost of
such enhancements. However, in no event shall Lessor receive a
price that is less than, or more than, the price received by
Lessee.” Id. In Young v. Equinor USA Onshore Properties, Inc., 982
F.3d 201 (4th Cir. 2020), the Fourth Circuit recently concluded
that Tawney’s third prong merely requires the lessor to identify
“how much of [the post-production costs] will be deducted from the
lessor’s royalties.” Id. at 208. It then held that this standard
may be satisfied through the use of the “work-back method” where
the actual and reasonable post-production costs are subtracted
from the gross proceeds received by the lessee to arrive at the
net amount realized, which is then adjusted for the lessor’s
fractional share of the total acreage and royalty rate. Id.
According to Antero, its enhancement deductions under the
Market Enhancement Clause are calculated using this work-back
method (Dkt. No. 180 at 15-16). It explains that it deducts the
identifiable, reasonable, and actual post-production costs from
the gross proceeds it receives from the Plaintiffs’ enhanced
product. Id. The amount realized is then adjusted for the Settling
Plaintiffs’ fractional share of the total pooled acreage and
27
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
royalty rate. 14 Pursuant to Young, therefore, the Market
Enhancement Clause satisfies Tawney’s third prong.
The
second
Market
prong,
Enhancement
however,
Clause
because
it
does
not
does
satisfy
not
Tawney’s
identify
with
particularity the costs that Antero may deduct from the Settling
Plaintiffs’
royalty
payments.
Although
the
Market
Enhancement
Clause enumerates types of post-production costs, 15 it does not
unambiguously identify the products from which those costs may be
deducted. Unlike the parties in Young, the Settling Plaintiffs and
Antero have failed to set out “the pool from which” enhancement
costs are to be deducted. Young, 982 F.3d at 208-09.
Moreover, key terms of the parties’ contract are ambiguous.
It is unclear whether they intended to include NGLs as “other
products,” or what efforts must be undertaken to get oil, gas, and
other products into their “marketable form.” Under Tawney, such
The Plaintiffs do not seriously dispute this methodology.
The Gross Proceeds Provision of the Market Enhancement Clause
provides that costs associated with the cost of producing,
gathering,
storing,
separating,
treating,
dehydrating,
compressing, processing, transporting, and marketing to get oil,
gas, or other products into its marketable form cannot be deducted
directly or indirectly from the Plaintiffs’ royalty payments (Dkt.
No. 50 at 21). The Enhancement Clause then also states that “such
costs” may be deducted if they enhance the value of an already
marketable product. Id.
14
15
28
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
ambiguities preclude a finding that the enhancement costs to be
deducted have been stated with sufficient specificity.
This conclusion complies with the Court’s duty to construe
any ambiguities in the parties’ Market Enhancement Clause against
its drafter, Antero. Syl. Pt. 5, Energy Dev. Corp., 591 S.E.2d
135. Had Antero intended that the Settling Plaintiffs bear a
portion of the costs to enhance their gas, Antero was obligated to
use
“specific
language
which
clearly
informed
the
[Settling
Plaintiffs] . . . what deductions were to be taken.” Tawney, 633
S.E.2d at 29-30.
This conclusion also comports with the principles espoused in
Wellman and Tawney, as well as the “long-established expectation
of lessors in [West Virginia], that they would receive one-eighth
of the sale price received by the lessor.” Wellman, 557 S.E.2d at
265.
Under
Wellman
and
Tawney,
the
Settling
Plaintiffs
were
entitled to know the specific costs Antero could deduct from their
royalty payments, and Antero bore the burden of stating those
deductions with specificity.
The Court therefore grants summary judgment to the Settling
Plaintiffs as to their claim that Leases 2 through 7 are subject
to the dictates of Wellman and Tawney because the language of the
Market Enhancement Clause is insufficient to permit Antero to take
29
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
post-production or market enhancement deductions from their
royalty payments. However, genuine questions of material fact
remain
regarding
the
Settling
Plaintiffs
claim
for
damages,
specifically whether Antero has deducted any costs from their
royalty payments since August 2018, and if so, whether the Settling
Plaintiffs have suffered any injury.
D.
Non-Settling
through 7
Plaintiffs’
interests
under
Leases
2
The Court must determine whether, under Wellman and Tawney,
Leases 2 through 7 in their unmodified form allow Antero to
allocate post-production or market enhancement costs to the NonSettling Plaintiffs. Although the royalty provisions of these
leases outline Antero’s royalty payment obligations to the NonSettling Plaintiffs, none reference post-production costs, much
less expressly provide that the Non-Settling Plaintiffs shall bear
a
proportional
share
of
either
post-production
or
market
enhancement costs. See Dkt. Nos. 240-2, 240-3, 240-4, 240-5, 2406, 240-7.
The unmodified Leases 2 through 7 therefore fail to satisfy
Tawney’s first prong and do not permit Antero to deduct any postproduction
costs
from
the
Non-Settling
Plaintiffs’
royalty
payments. The Court therefore denies summary judgment to Antero as
30
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
to its royalty obligations to the Non-Settling Plaintiffs under
Leases 2 through 7.
E.
All Plaintiffs’ interests under Lease 9
Nor does Lease 9 reference post-production costs or attempt
to allocate costs to the Plaintiffs. See Dkt. No. 240-9. Because
Antero must bear the costs of production under Lease 9, any
deductions for post-production costs taken from the Plaintiffs’
royalty
payments
would
violate
West
Virginia
law.
The
Court
therefore denies summary judgment to Antero as to its royalty
obligations under Lease 9.
F.
All Plaintiffs’ interests under Lease 8
Lease 8 is a flat rate lease requiring Antero to pay “$100
per year for each and every gas well obtained on the premises”
(Dkt. No. 240-8). Under West Virginia law, flat rate leases are
not
subject
to
Wellman’s
presumption
and
Tawney’s
heightened
specificity requirements. Leggett v. EQT Prod. Co., 800 S.E.2d
850, 862 (W. Va. 2017). Instead, they are governed by West Virginia
Code § 22-6-8, which the West Virginia Legislature amended in 2018.
Section 22-6-8, enacted in 1982 and first amended in 1994,
stated that no permit for a flat rate well would be issued unless
the lessee swore by affidavit that it would pay the lessor “no
less than one-eighth of the total amount paid to or received by or
allowed to [the lessee] at the wellhead for the oil and gas so
31
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
extracted, produced or marketed.” Leggett, at 854 (quoting W. Va.
Code § 22-6-8(e) (1994)) (emphasis and alteration in original). In
Leggett, the Supreme Court of Appeals interpreted this language as
follows:
[R]oyalty payments pursuant to an oil or gas lease
governed by West Virginia Code § 22–6–8(e) (1994) may be
subject to pro-rata deduction or allocation of all
reasonable post-production expenses actually incurred by
the lessee. Therefore, an oil or gas lessee may utilize
the “net-back” or “work-back” method to calculate
royalties owed to a lessor pursuant to a lease governed
by West Virginia Code § 22–6–8(e).
Syl. Pt. 8, Id. at 868.
Following Leggett, the West Virginia Legislature amended §
22-6-8 in 2018 to state that
no such permit shall be hereafter issued for the drilling
of a new oil or gas well, or for the redrilling,
deepening,
fracturing,
stimulating,
pressuring,
converting, combining or physically changing to allow
the migration of fluid from one formation to another, of
an existing oil or gas production well, where or if the
right to extract, produce or market the oil or gas is
based upon a lease or leases or other continuing contract
or contracts providing for flat well royalty
W. Va. Code § 22-6-8(d) (2018). The amended statute further
provided that a lessee can nevertheless obtain a permit by an
affidavit swearing it will pay the lessor
not less than one eighth of the gross proceeds, free
from any deductions for post-production expenses,
received at the first point of sale to an unaffiliated
third-party purchaser in an arm's length transaction for
the oil or gas so extracted, produced or marketed before
32
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
deducting the amount to be paid to or set aside for the
owner of the oil or gas in place, on all such oil or gas
to be extracted, produced or marketed from the well.
W. Va. Code § 22-6-8(e) (2018) (emphasis added). 16
The
Plaintiffs
retroactively
to
argue
prohibit
that
Antero
the
from
2018
amendment
taking
applies
post-production
deductions from their royalty payments under Lease 8 (Dkt. No. 181
at 15-19). Antero disagrees, contending that the statute in effect
when the Plaintiffs’ wells were permitted governs Antero’s royalty
obligations.
“The presumption is that a statute is intended to operate
prospectively, and not retrospectively, unless it appears, by
clear, strong and imperative words or by necessary implication,
that the Legislature intended to give the statute retroactive force
and effect.” Syl. Pt. 2, Martinez v. Asplundh Tree Expert Co., 803
S.E.2d 582 (W. Va. 2017). A law applies retroactively if it
In amending § 22-6-8(e), the West Virginia Legislature responded
to the court’s call to act in Leggett:
16
Nevertheless, this Court recognizes the inherent tension
between holders of leases subject to our interpretation
of West Virginia Code § 22-6-8 and those freelynegotiated leases which remain subject to the holdings
of Wellman and Tawney. We therefore implore the
Legislature to resolve the tensions as it sees fit
inasmuch as this Court may only act within the confines
of our constitutional charge.
Leggett, 800 S.E.2d at 869.
33
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
“operates upon transactions which have been completed or upon
rights which have been acquired or upon obligations which have
existed prior to its passage.” Syl. Pt. 3, Sizemore v. State
Workmen’s Comp. Comm’r, 219 S.E.2d 912 (W. Va. 1975). There is a
long-standing
principle
under
West
Virginia
law
that
“[n]o statute, however positive, is to be construed as designed to
interfere with existing contracts, rights of action, or suits, and
especially vested rights, unless the intention that it shall so
operate is expressly declared.” Syl. Pt. 3, Rogers v. Lynch, 29
S.E. 507 (W. Va. 1897).
As the Plaintiffs concede, the amended statute does not state
in
“clear,
strong[,]
and
imperative
words”
that
it
applies
retroactively (Dkt. No. 181 at 19). Nor does it specify any intent
by the legislature to clarify the existing law on flat rate leases
or to overrule the holding of the Supreme Court of Appeals in
Leggett. Rather, the amendment prohibits the issuance of any new
permit for “drilling ... a new oil or gas well, or ... redrilling,
deepening,
fracturing,
stimulating,
pressuring,
converting,
combining or physically changing to allow the migration of fluid
from one formation to another, of an existing oil or gas production
well”
without
the
lessee
first
agreeing
to
pay
the
lessors
royalties free from any deductions for post-production expenses.
34
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
W. Va. Code § 22-6-8(d). Based on this, the 2018 amendment clearly
does not apply retroactively.
That the amendment does not apply retroactively does not lead
inevitably to the conclusion that Leggett applies to Antero’s
royalty payment obligations under Lease 8. In 2012, Antero obtained
permits to
operate
three
flat
rate
wells
on
the
Plaintiffs’
property (Dkt. No. 183 at 11-12). The record is silent as to
whether, since 2012, Antero has altered any of its activities on
the Plaintiffs’ properties that would require a new permit, such
as “drilling ... a new oil or gas well, or ... redrilling,
deepening,
fracturing,
stimulating,
pressuring,
converting,
combining or physically changing to allow the migration of fluid
from one formation to another” any of the three existing flat rate
wells. W. Va. Code § 22-6-8(d). Because the Court is unable to
ascertain whether, post-2018, Antero was required to obtain a new
permit for any of these purposes, it cannot determine whether
Leggett or the 2018 amendment to § 22-6-8 governs Antero’s royalty
obligations under Lease 8.
G.
Genuine questions of material fact exist as to whether
Antero is liable for damages.
Although
the
Court
has
found
that
none
of
the
royalty
provisions in the leases governed by Wellman and Tawney allow
Antero to deduct post-production or market enhancement costs from
35
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
the Plaintiffs’ royalty payments, genuine questions of material
fact exist as to whether the Plaintiffs have suffered any damages
as a consequence of Antero’s alleged breach. In West Virginia,
damages are an essential element of a breach of contract claim and
must be proved to a reasonable certainty. Sneberger, 776 S.E.2d at
156; Sellaro, 214 S.E.2d at 828.
Antero asserts that the Plaintiffs have not been damaged
because its payments to them have exceeded its royalty obligations
under the Leases (Dkt. No. 180 at 24-25). It contends that it has
actually overpaid the Plaintiffs by $21,126.40, and has calculated
all their royalties based on the volume of the gas at the wellhead
rather than the volume sold, thereby paying royalties on unsold
volumes of gas despite having no obligation to do so. Id. Moreover,
according to Antero, it has not processed any of their gas or taken
any deductions on their NGLs since August 2018. Id.
The
Plaintiffs
contend
that
Antero
has
underpaid
them
$165,427.97 in NGL royalties, and has deducted $6,169.19 in postproduction costs from their natural gas royalties (Dkt. No. 185 at
21).
They
also
dispute
Antero’s
contention
that
it
has
not
processed any of their natural gas since August 2018, and maintain
they are owed royalties free of deductions for the sale of NGLs
36
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
manufactured from the gas extracted from their property. Id. 2122.
Several contested facts are material to the parties’ dispute
over damages, among which are whether Antero has extracted and
sold NGLs from the Plaintiffs’ gas since August 2018; whether the
Plaintiffs’ gas is marketable in its raw form; and, depending on
the answers to these questions, whether Antero is liable for
damages to the Plaintiffs based on the way it calculates its
royalty
payments.
These
genuine
questions
of
material
fact
preclude summary judgment to either party.
III. Conclusion
For the reasons discussed, the Court:
(1)
GRANTS
IN
PART
the
Plaintiffs’
motion
for
summary
judgment as to the applicability of the holdings in
Wellman and Tawney to Leases 2 through 7, and the failure
of the Market Enhancement Clause to meet the heightened
specificity
deductions
required
under
West
to
permit
Virginia
law,
post-production
and
DENIES
the
remainder of their motion (Dkt. No. 210); and
(2)
DENIES Antero’s motion for summary judgment (Dkt. No.
207).
37
CORDER, ET. AL V. ANTERO RESOURCES CORP.
1:18CV30
MEMORANDUM OPINION AND ORDER GRANTING IN PART THE
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT [DKT. NO. 210] AND
DENYING ANTERO’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 207]
The case shall proceed to trial as scheduled on all remaining
issues (Dkt. Nos. 159, 166).
It is so ORDERED.
The Clerk SHALL transmit copies of this Memorandum Opinion
and Order to counsel of record.
DATED: May 12, 2021.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
38
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?