## Facts

- West Virginia royalty owners leased oil and gas interests to Columbia Natural Resources, L.L.C. and related entities, typically reserving a one-eighth royalty.
- Beginning by at least 1993, the lessee deducted “post-production” expenses from royalty payments, including costs to gather, transport, process, and deliver gas to a transmission line, plus certain volume-loss amounts.
- The dispute involved a certified class action encompassing thousands of leases with varied royalty clauses, including “at the well,” “at the wellhead,” “net all costs beyond the wellhead,” and “less all taxes, assessments, and adjustments.”
- Lessors alleged underpayment of royalties based on improper deductions and challenged the lessee’s asserted contractual authority to allocate post-production costs to lessors.
- The circuit court certified questions to the Supreme Court of Appeals of West Virginia concerning whether the quoted royalty-clause language permitted deduction of post-production costs.

## Issues

1. Whether royalty clauses stating payment “at the well,” “at the wellhead,” “net all costs beyond the wellhead,” or “less all taxes, assessments, and adjustments” clearly authorize a lessee to deduct post-production expenses from a lessor’s one-eighth royalty under West Virginia law.

## Decision

- The court answered the reformulated certified question **No**.
- The cited royalty-clause phrases were held **not sufficiently clear and unambiguous** to shift post-production costs to the lessors.
- Because the language was ambiguous, it was construed in favor of lessors; therefore, the lessee could not deduct post-production expenses under those clauses.
- The matter was returned to the circuit court for further proceedings consistent with the court’s answer.

## Legal Principles

- In West Virginia, when royalties are based on proceeds received by the lessee, the lessee bears costs of exploring for, producing, marketing, and transporting the product to the point of sale **unless the lease provides otherwise**.
- A lease shifts post-production costs to the lessor only if it does so in **express, specific, and unambiguous** terms.
- “At the well” and “at the wellhead” language is **reasonably susceptible to more than one meaning** and is therefore ambiguous regarding cost allocation.
- General phrases such as “net all costs beyond the wellhead” or “less all taxes, assessments, and adjustments,” without clear identification of deductible post-production items, are insufficient to override the default rule.
- If a lease validly allocates certain post-production costs to a lessor, the lessee must prove the costs were **actually incurred** and **reasonable** to claim credit for them.

## Conclusion

The court held that common “at the well/wellhead” and similarly general “net/less” royalty formulations do not clearly allocate post-production costs to lessors, so the lessee must bear those costs absent explicit and unambiguous cost-shifting language in the lease.


Estate of Tawney v. Columbia Nat. Res., L.L.C., 219 W. Va. 266, 633 S.E.2d 22 (W. Va. 2006)