Yesterday, the United States Court of Appeals for the Sixth Circuit upheld a lower court's ruling that Kentucky follows the “at-the-well” rule for purposes of royalty calculations, meaning that - with appropriate lease language - lessees may deduct post-production costs before paying landowner royalties (Poplar Creek Development Company v. Chesapeake Appalachia, LLC). The royalty provision cited by the court stated: "To pay to the Lessor a royalty for the gas produced and marketed from any gas well on the leased premises at the rate of one-eighth (1/8) part of the wholesale market value of such gas at the well based on the usual prices paid therefor ..." (Emphasis is ours.) Moreover, the court held that "'at-the-well' refers to gas in its natural state, before the gas has been processed or transported from the well."
Another good case for the Basin!