Whether certain post-production costs can be deducted is a battle that has been raging for a number of years and across numerous states. Certain companies have become notorious for the amount and type of post-production costs they deduct from mineral owners. As a result, a slew of decisions on this issue have popped up in Louisiana. However, until this year, the issue of whether post-production costs could be deducted from unleased mineral owners had not been addressed.
On March 21, 2019, in Allen Johnson, et al. v. Chesapeake Louisiana, L.P. a federal district court ruled that a unit operator may not recover post-production costs from an unleased mineral owner’s share of the production proceeds. This is a common practice for Chesapeake and BHP and has resulted in less money in many mineral owners’ pockets.
The court acknowledged the issue as one of first impression and set forth a thoughtful and concise opinion protecting the rights of unleased mineral owners in Louisiana. The court relied on the statutory scheme in place for the relationship between unleased mineral owners and unit operators, finding that unleased mineral owners are given the equivalent of a “no cost” royalty clause on production proceeds.
Ultimately, the court’s decision makes clear that unleased mineral owners are not bound by the practices of unit operators when it comes to post-production costs. Our firm, along with two other firms, represented the unleased mineral owners in the Johnson case and recently filed a class action against BHP and Chesapeake on behalf of unleased mineral owners impacted by improper post-production deductions. If you are an unleased mineral owner in Louisiana, give us a call for a free evaluation of your case.