Romeo v. Antero Res. Corp.

Full title: JACKLIN ROMEO, SUSAN S. RINE, and DEBRA SNYDER MILLER, Plaintiffs Below…

Court: State of West Virginia Supreme Court of Appeals

Date published: Nov 14, 2024

No. 23-589 (W. Va. Nov. 14, 2024)

Opinion

23-589

11-14-2024

JACKLIN ROMEO, SUSAN S. RINE, and DEBRA SNYDER MILLER, Plaintiffs Below, Petitioners, v. ANTERO RESOURCES CORPORATION, Defendant Below, Respondent.

George A. Barton, Esq., Barton and Burrows, LLC, Mission, Kansas, L. Lee Javins II Esq., Taylor M. Norman, Esq., Bailey, Javins & Carter, L.C., Charleston, West Virginia, Howard M. Persinger, III, Persinger & Persinger, L.C., Charleston, West Virginia, Counsel for Petitioners. W. Henry Lawrence, Esq. Amy M. Smith, Esq. Lauren K. Turner, Esq. Steptoe & Johnson PLLC Bridgeport, West Virginia Elbert Lin, Esq. Hunton Andrews Kurth LLP, Richmond, Virginia, Daniel T. Donovan, Esq. Kirkland & Ellis LLP, Washington, D.C. Counsel for Respondent.

WOOTON, JUSTICE.

Submitted: September 18, 2024.

Certified Questions from the United States District Court for the Northern District of West Virginia The Honorable Thomas S. Kleeh, Chief Judge Civil Action No. 1:17-CV-88-TSK-MJA.

CERTIFIED QUESTIONS ANSWERED

George A. Barton, Esq., Barton and Burrows, LLC, Mission, Kansas, L. Lee Javins II Esq., Taylor M. Norman, Esq., Bailey, Javins & Carter, L.C., Charleston, West Virginia, Howard M. Persinger, III, Persinger & Persinger, L.C., Charleston, West Virginia, Counsel for Petitioners.

W. Henry Lawrence, Esq. Amy M. Smith, Esq. Lauren K. Turner, Esq. Steptoe & Johnson PLLC Bridgeport, West Virginia Elbert Lin, Esq. Hunton Andrews Kurth LLP, Richmond, Virginia, Daniel T. Donovan, Esq. Kirkland & Ellis LLP, Washington, D.C. Counsel for Respondent.

JUSTICE HUTCHISON concurs and reserves the right to file a separate opinion. JUSTICE WALKER dissents and reserves the right to file a separate opinion. JUSTICE BUNN dissents and reserves the right to file a separate opinion. JUDGE HARDY, sitting by designation.

SYLLABUS

1. "'"A de novo standard is applied by this court in addressing the legal issues presented by a [sic] certified questions from a federal district or appellate court." Syl. Pt. 1, Light v. Allstate Ins. Co., 203 W.Va. 27, 506 S.E.2d 64 (1998).' Syllabus Point 2, Aikens v. Debow, 208 W.Va. 486, 541 S.E.2d 576 (2000)." Syl. Pt. 1, Harper v. Jackson Hewitt, Inc., 227 W.Va. 142, 706 S.E.2d 63 (2010).

2. "If an oil and gas lease provides for a royalty based on proceeds received by the lessee, unless the lease provides otherwise, the lessee must bear all costs incurred in exploring for, producing, marketing, and transporting the product to the point of sale." Syl. Pt. 4, Wellman v. Energy Res., Inc., 210 W.Va. 200, 557 S.E.2d 254 (2001).

3. Where an oil and gas lease contains an express or implied duty to market, the requirements of Wellman v. Energy Resources, Inc., 210 W.Va. 200, 557 S.E.2d 254 (2001), and Estate of Tawney v. Columbia Natural Resources, L.L.C., 219 W.Va. 266, 633 S.E.2d 22 (2006), extend to the point of sale, not just to the point of marketability or to the first available market.

4. Unless the lease provides otherwise, royalties are payable to the mineral owner/lessor not only from the producer/lessee's sale of wet gas and residue gas but also from the lessee's sale of any byproducts of the wet gas such as natural gas liquids.

5. The requirements of Wellman v. Energy Resources., Inc., 210 W.Va. 200, 557 S.E.2d 254 (2001), and Estate of Tawney v. Columbia Natural Resources, L.L.C., 219 W.Va. 266, 633 S.E.2d 22 (2006), apply not only to wet gas and residue gas but also to the sale of any byproducts such as natural gas liquids.

6. "'The general rule as to oil and gas leases is that such contracts will generally be liberally construed in favor of the lessor, and strictly as against the lessee.' Syllabus Point 1, Martin v. Consolidated Coal & Oil Corp., 101 W.Va. 721, 133 S.E. 626 (1926)." Syl. Pt. 7, Est. of Tawney, 219 W.Va. 266, 633 S.E.2d 22 (2006).

7. "'The question as to whether a contract is ambiguous is a question of law to be determined by the court.' Syllabus Point 1, in part, Berkeley County Pub. Serv. Dist. v. Vitro Corp. of Am., 152 W.Va. 252, 162 S.E.2d 189 (1968)." Syl. Pt. 5, Est. of Tawney, 219 W.Va. 266, 633 S.E.2d 22 (2006).

8. "Language in an oil and gas lease that is intended to allocate between the lessor and lessee the costs of marketing the product and transporting it to the point of sale must expressly provide that the lessor shall bear some part of the costs incurred between the wellhead and the point of sale, identify with particularity the specific deductions the lessee intends to take from the lessor's royalty (usually 1/8), and indicate the method of calculating the amount to be deducted from the royalty for such post-production costs." Syl. Pt. 10, Estate of Tawney v. Columbia Nat. Res. L.L.C., 219 W.Va. 266, 633 S.E.2d 22 (2006).

9. Absent express language in a gas lease sufficient to satisfy the requirements set forth in syllabus point ten of Estate of Tawney v. Columbia Natural Resources, L.L.C., 219 W.Va. 266, 633 S.E.2d 22 (2006), a producer/lessee may not deduct from a mineral owner/lessor's royalties a proportionate share of the costs incurred in processing, fractionating, and transporting residue gas and natural gas liquids to the point of sale.

OPINION

WOOTON, JUSTICE.

This matter is before the Court upon an October 12, 2023, order of the United States District Court for the Northern District of West Virginia which certified the following questions:¹

1 West Virginia Code section 51-1A-3 (2016), provides:

The Supreme Court of Appeals of West Virginia may answer a question of law certified to it by any court of the United States . . . if the answer may be determinative of an issue in a pending case in the certifying court and if there is no controlling appellate decision, constitutional provision or statute of this state.

Question No. 1: Do the requirements of Wellman v. Energy Resources, Inc., [210 W.Va. 200, 557 S.E.2d 254 (2001)], and Estate of Tawney v. Columbia Natural Resources, [L.L.C.], [219 W.Va. 266, 633 S.E.2d 22 (2006)], extend only to the "first available market" as opposed to the "point of sale" when the duty to market is implicated?

Question No. 2: Does the first marketable product rule extend beyond gas to require a lessee to pay royalties on natural gas liquids ("NGLs"), and if it does, do the lessors share in the cost of processing, manufacturing, and transporting the NGLs to sale?

Upon careful review of the parties' briefs² and arguments, the appendix record, and the applicable law, we now answer the certified questions as set forth in the opinion infra and remand this matter to the district court for such further proceedings as that court may deem appropriate.

2 We acknowledge the amicus curiae briefs filed by the West Virginia Royalty Owners' Association and West Virginia Farm Bureau, and the Gas and Oil Association of WV, Inc., and thank these entities for giving the Court the benefit of their respective positions on the issues.

I. Facts and Procedural Background

The underlying case, a class action lawsuit alleging breach of contract claims against respondent Antero Resources Corp. ("Antero") was brought by class representatives Jacklin Romeo, Susan S. Rine, and Debra Snyder Miller (collectively "the petitioners") in district court. Each of the petitioners allege ownership of oil and gas interests in Harrison County, West Virginia, subject to existing leases in which the original lessee assigned his or their interests to Antero.

Petitioner Romeo is the assignee of a portion of the lessors' interest under a March 14, 1984, lease agreement ("the Mutschelknaus lease") entered into between the lessors Jessie J. Nixon, Betty Nixon, Mary Alice Vincent, and Hubert L. Vincent, and the lessee Clarence W. Mutschelknaus, Antero's predecessor in interest. The royalty provision in the Mutschelknaus lease is as follows:

In consideration of the premises, the said [lessee] covenants and agrees: First, to deliver monthly to the credit of the Lessors, their heirs or assigns, free of costs, in a pipeline, to which Lessee may connect its wells, Lessors' proportionate share of the equal one-eighth (1/8) part of all oil produced and saved from the leased premises; and second, to pay monthly Lessors' proportionate share of the one-eighth (1/8) of the value at the well of the gas from each and every gas 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, and to pay monthly Lessors' proportionate share of the one-eighth (1/8) of the net value at the factory of the gasoline and other gasoline products manufactured from casinghead gas.

Petitioners Rine and Miller are the assignees of portions of the lessors' interest under an October 19, 1979, lease agreement ("the Matthey lease") between the lessors Lee H. Snyder and Olive W. Snyder, and the lessee Robert L. Matthey, Jr., Antero's predecessor in interest. The royalty provision in the Matthey lease is as follows:

(a) Lessee covenants and agrees to deliver to the credit of the Lessor, his heirs or assigns, free of cost, in the pipe line to which said Lessee may connect its wells, a royalty of one-eighth (1/8) of native oil produced and saved from the leased premises.

(b) Lessee covenants and agrees to pay Lessor as royalty for the native gas from each and every well drilled on said premises producing native gas, an amount equal to one-eighth (1/8) of the gross proceeds received from the sale of the same at the prevailing price for gas sold at the well, for all native gas saved and marketed from the said premises, payable quarterly.

The petitioners allege that Antero has breached the terms of the royalty provisions in both the Mutschelknaus and Matthey leases by failing to pay them the full one-eighth royalty specified in the leases. Specifically, the petitioners contend that pursuant to this Court's decisions in Wellman and Estate of Tawney, Antero was prohibited from deducting postproduction costs from the gross sale proceeds of the gas in calculating the petitioners' royalties. In response, Antero's position is that Wellman and Estate of Tawney prohibit such deductions only until the oil and gas reach the first available market, not the point of sale; that royalties aren't payable on the byproducts of the gas produced from petitioners' wells, i.e., the natural gas liquids ("NGLs,")³ and that even if royalties are payable on the NGLs, Antero is entitled to deduct the postproduction costs incurred in marketing these byproducts.

3 See generally CNX Gas Co., Inc. v. Irby, No. 23-ICA-36, 2024 WL 1261813, at *1 n.4 (W.Va. Ct. App. Mar. 25, 2024) (defining NGLs as "a group of hydrocarbons including butane, propane, and ethane[.]"

Of relevance to the parties' legal arguments, it appears to be factually undisputed that the wells subject to the petitioners' royalty interests produce "wet gas," which is saturated with liquid hydrocarbons and water. In some circumstances Antero does not process the wet gas; rather, it is sold at or near the wellhead or delivered into a gathering system where it is sold upon entry into an interstate transmission line. Otherwise, Antero delivers the wet gas (comingled with gas from other wells) to a processing plant in Doddridge County, West Virginia, where the heavier liquid hydrocarbon byproducts, referred to as the "Y-Grade mixture," are separated from the "residue gas." The residue gas is then sold either at the tailgate of the processing plant, at local sales locations, or at distant locations such as Chicago, Illinois, Detroit, Michigan, and the Gulf Coast. The residue gas commands different prices in different sales locations, but the sales result in different transportation costs. The Y-Grade mixture is transported to another processing plant some distance away where it is fractionated into the NGLs, specifically, ethane, butane, isobutane, propane, and natural gas. The NGLs are then sold either at the tailgate of the fractionation plant or transported to more distant markets.

Following extensive litigation in the district court - the case was filed more than seven years ago, the appendix record contains 7,340 pages of information, and at one point, the matter was stayed for approximately eighteen months to await what Antero anticipated would be a dispositive decision by the United States Court of Appeals for the Fourth Circuit⁴ the district court certified the two questions set forth above. By Order dated May 15, 2024, we accepted the certified questions and set this matter for oral argument.

4 See Corder v. Antero Res. Corp., 57 F.4th 384 (4^th Cir. 2023), discussed infra at length.

II. Standard of Review

It is well established that "'"[a] de novo standard is applied by this court in addressing the legal issues presented by a certified question[] from a federal district or appellate court." Syl. Pt. 1, Light v. Allstate Ins. Co., 203 W.Va. 27, 506 S.E.2d 64 (1998).' Syllabus Point 2, Aikens v. Debow, 208 W.Va. 486, 541 S.E.2d 576 (2000)." Syl. Pt. 1, Harper v. Jackson Hewitt, Inc., 227 W.Va. 142, 706 S.E.2d 63 (2010). Our resolution of the certified questions before us will be guided by this standard.

III. Discussion

A. "First available market" or "Point of Sale"

Antero acknowledges this Court's longstanding precedent governing a producer/lessee's right to deduct a proportionate share of postproduction costs when calculating an owner/lessor's royalties: "If an oil and gas lease provides for a royalty based on proceeds received by the lessee, unless the lease provides otherwise, the lessee must bear all costs incurred in exploring for, producing, marketing, and transporting the product to the point of sale." Wellman, 210 W.Va. at 202, 557 S.E.2d at 256, Syl. Pt. 4; see also Estate of Tawney, 219 W.Va. at 267, 63 S.E.2d at 23, Syl. Pt. 1. Nonetheless, Antero contends that this Court's recent pronouncement in SWN Production Co., LLC v. Kellam, 247 W.Va. 78, 875 S.E.2d 216 (2022), that syllabus points four and five⁵ of Wellman "firmly cemented West Virginia as a 'marketable product rule' state, meaning that the lessee bears all postproduction costs incurred until the product is first rendered marketable, unless otherwise indicated in the subject lease[,]"⁶ made clear that the words "transporting the product to the point of sale" in Wellman and Estate of Tawney actually meant "transporting the product to the point where it is first rendered marketable," i.e., to the "first available market."

5 Syllabus point five of Wellman provides:

If an oil and gas lease provides that the lessor shall bear some part of the costs incurred between the wellhead and the point of sale, the lessee shall be entitled to credit for those costs to the extent that they were actually incurred and they were reasonable. Before being entitled to such credit, however, the lessee must prove, by evidence of the type normally developed in legal proceedings requiring an accounting, that he, the lessee, actually incurred such costs and that they were reasonable.

210 W.Va. at 202, 557 S.E.2d at 256, Syl. Pt. 5.

6 Kellam, 247 W.Va. at 83, 875 S.E.2d at 221 (emphasis added .

We disagree with Antero's argument. First, we note that notwithstanding the existence of a single sentence in Kellam that arguably supports its position, neither that sentence, nor any of the inferences Antero seeks to draw from it, are set forth in a syllabus point in the opinion. Clearly, because adoption of a "first available market" theory would have represented a sea change in the law as it had been understood for more than two decades, the Court in Kellam would have been constitutionally required to prepare a syllabus point⁷ to announce the modification or overruling of Wellman and its progeny if indeed that was our intent - which it was not.

7 Article VIII, section 4 of the West Virginia Constitution provides, in relevant part, that "it shall be the duty of the court to prepare a syllabus of all points adjudicated in each case in which an opinion is written and in which a majority of the justices thereof concurred[.]" See Syl. Pt. 1, State v. McKinley, 234 W.Va. 143, 764 S.E.2d 303 (2014) ("Signed opinions containing original syllabus points have the highest precedential value because the Court uses original syllabus points to announce new points of law or to change established patterns of practice by the Court.") (emphasis added).

What is set forth in syllabus point three of Kellam is a reaffirmation of the Wellman "point of sale" rule, without change. See Kellam, 247 W.Va. at 80, 875 S.E.2d at 218, Syl. Pt. 3 (quoting Wellman, 210 W.Va. at 202, 557 S.E.2d at 256, Syl. Pt. 4). Undeterred by this fact, Antero contends that because a syllabus point "is not intended to be an exhaustive recitation of every item decided in the case, and must be read in light of the opinion as a whole[,]" McKinley, 234 W.Va. at 149, 764 S.E.2d at 309, the words "transporting the product to the point of sale" actually mean "transporting the product to the point where it is first rendered marketable" because the point of sale in both Wellman and Estate of Tawney was in fact the first available market, i.e., a location in the local basin.

Again, we disagree with Antero. At the outset, we note that it is not entirely clear from a close reading of those cases that Antero's flat assertion of fact is correct. In Wellman, the sheer amount of postproduction costs sought to be deducted by the producer suggests that the product may not have been sold at or near the wellhead,⁸ where one would expect such costs to be minimal or nonexistent. In Estate of Tawney, "the arguments presented by [the lessee] . . . essentially posited that gas was not sold at the wellhead, but to a supplier downstream[.]" Kellam, 247 W.Va. at 84, 875 S.E.2d at 222 (discussing Estate of Tawney). Further, there is no indication in either Wellman or Estate of Tawney that the Court's holdings were geographically limited in any way, and indeed, post-Estate of Tawney developments in the area of oil and gas royalties strongly suggest otherwise.⁹As detailed supra, in Kellam, where we reaffirmed the validity of our "point of sale" language in syllabus point three, there was no indication that oil and gas from the royalty owners' wells was sold at the first available market. Additionally, Antero's analysis omits any mention of the fact that in 2018 - more than a decade after Estate of Tawney - the West Virginia Legislature affirmed the validity of our "point of sale" language by amending West Virginia Code section 22-6-8(e) to provide that, with respect to flat-rate lease provisions subject to the statute,¹⁰ the provider must agree to pay a royalty "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." Id. (emphasis added).

8 It was undisputed that the lessee sold the gas for $2.22 per thousand cubic feet and claimed $1.35 per thousand cubic feet in postproduction costs - ultimately reducing the lessors' one-eighth royalty interests by almost two-thirds. See Wellman, 210 W.Va. at 204, 557 S.E.2d at 258.

9 The only postEstate of Tawney case in which this Court evidenced some support for the industry's attacks on Wellman and Estate of Tawney was Leggett v. EQT Production Co., 239 W.Va. 264, 800 S.E.2d 850 (2017), where a majority of the Court harshly criticized both Wellman and Estate of Tawney, going so far as to characterize those opinions as reflecting the Court's "complete misunderstanding of the [oil and gas] industry" and its analyses as "nothing more than a re-writing of the parties' contract to take money from the lessee and give it to the lessor." Id. at 277, 800 S.E.2d at 863. We later described Leggett's criticism of Wellman and Estate of Tawney as a "somewhat indulgent frolic" which was "mere obiter dicta and of no authoritative value to this Court today." Kellam, 247 W.Va. at 87-88, 875 S.E.2d at 225-26.

10 Although flat rate lease provisions by their express terms entitle mineral owner/lessors only to a yearly sum certain, per well, per year - i.e., a payment in the nature of a rent rather than a royalty - subsection (e) of the statute prohibited the issuance of permits for new drilling or for the reworking of existing wells unless the producer/lessee filed an affidavit certifying that it would pay royalties to the owner/lessor as set forth infra. See W.Va. Code § 22-6-8(e).

We also find it significant that the words "transporting the product to the point of sale" in Wellman and Estate of Tawney do not stand alone; the language in those cases, as well as in Kellam, is producing, marketing, and transporting the product to the point of sale. In this regard, we have held that the "duty to market embraces the responsibility to get the oil or gas in marketable condition and actually transport it to market." Wellman, 210 W.Va. at 210, 557 S.E.2d at 264; see also Kellam, 247 W.Va. at 87 n.3, 875 S.E.2d at 225 n.3 ("the implied duty to market means a duty to get the product to the place of sale in marketable form.") (citing Wood v. TXO Prod. Corp., 854 P.2d 880, 882 (Okla. 1992)). Thus, the word "marketing" in the duty first enunciated in Wellman, and thereafter consistently reaffirmed for the past twenty-three years, would be entirely superfluous if we were to adopt Antero's argument that its only duty is to produce and then transport the oil or gas to the point where it is "first rendered marketable" or to the "first available market."

This brings us to the real heart of Antero's argument, which is that whether by interpreting syllabus point four of Wellman, modifying it, or overruling it, this Court should adopt the "marketable product rule" as set forth in Garman v. Conoco, 886 P.2d 652 (Colo. 1994): that there exists a presumption that lessees bear all postproduction costs until they have "made the gas marketable in the first place." Id. at 658, 662. In this regard, Antero notes that the Wellman Court relied on Garman in its analysis of a related issue, the lessee's implied duty to market, but failed to follow Garman's ultimate conclusion that "[u]pon obtaining a marketable product, any additional costs incurred to enhance the value of the marketable gas, such as [transportation costs and costs to process gas into its components], may be charged against nonworking interest owners." Id. at 661; see also Sternberger v. Marathon Oil Co., 894 P.2d 788, 800 (Kan. 1995) ("the Colorado Supreme Court held as we believe the law in Kansas to be: Once a marketable product is obtained, reasonable costs incurred to transport or enhance the value of the marketable gas may be charged against nonworking interest owners."); Mittelstaedt v. Santa Fe Mins., Inc., 954 P.2d 1203, 1207 (Okla. 1998) (citing both Garman and Sternberger with approval for the proposition that "[o]nce a marketable product is obtained, reasonable costs incurred to transport or enhance the value of the marketable gas may be charged against nonworking interest owners."). Because all three of the cited cases were relied upon in Wellman, Antero concludes that Wellman "cannot be read" to hold that lessees have a duty to market gas beyond the first available market to a later point of sale, or to incur all costs associated with moving the product from a first available market to a final point of sale.

Not only can Wellman be read to hold that "the lessee must bear all costs incurred in exploring for, producing, marketing, and transporting the product to the point of sale[,]" that is exactly what it did hold.¹¹ Wellman, 210 W.Va. at 202, 557 S.E.2d at 256, Syl. Pt. 4. This holding was reaffirmed by the Court in Estate of Tawney and Kellam, then reaffirmed by the Legislature - resoundingly¹² - after Leggett suggested that our precedents might be on the judicial chopping block. Thus, it is clear that our cases are based on a solid foundation of established practice and established legal principles in this State.¹³

11 Even the United States Circuit Court for the Fourth Circuit rejected Antero's "first point of marketability" argument in Corder: "[W]e cannot ignore the express 'point of sale' language in the syllabus points in Wellman, Tawney, and Kellam. Because the West Virginia Supreme Court has not adopted a contrary rule, we conclude that the Tawney requirements apply through point of sale." Corder, 57 F.4th at 297 (emphasis added).

12 The Legislature's amendment of West Virginia Code section 22-6-8(e), which specifically targeted the anomaly of Leggett in our jurisprudence, was consistent with its duty to determine the policy of this State with respect to the interests of the oil and gas industry vis a vis the interests of citizens having royalty rights in the oil and gas produced.

13 As we stated in Kellam, Wellman and Tawney are consistent with decades of oil and gas jurisprudence in this State, as well as general principles of contract which undergird the formation of oil and gas leases- including the use of implied covenants when a lease is silent on an issue.

While litigation has arisen under those opinions, that is not indicative of instability or 'chaos' but is the 'unavoidable consequence' of any opinion of this Court Leggett, 239 W Va at 284, 800 S.E.2d at 870 (Workman, J, concurring). In actuality, it is far more likely in our opinion that overruling Tawney and Wellman would result in instability and uncertainty, particularly for the thousands of leases that have been executed in the years since those opinions were published.

Kellam, 247 W.Va. at 89, 875 S.E.2d at 227.

A further reason for our decision today to reaffirm the validity of Wellman and Estate of Tawney, and specifically the "point of sale" rule, is the likelihood that a "first marketable product rule" is likely to generate endless litigation because the question of whether and when gas is marketable is a complex question of fact. See Leggett, 239 W.Va. at 273 n.13, 800 S.E.2d at 859 n.13 (citing Rogers v. Westerman Farm Co., 29 P.3d 887, 906 (Colo. 2001) ("[g]as is marketable when it is in the physical condition such that it is acceptable to be bought and sold in a commercial marketplace, and in the location of a commercial marketplace, such that it is commercially saleable in the oil and gas marketplace. The determination of whether gas is marketable is a question of fact, to be resolved by a fact finder.").

Thus, although it appears that our "point of sale" rule may make West Virginia a minority of one - with three other states, Kansas, Colorado, and Oklahoma taking an opposite view - we are not inclined to upset our well-grounded precedents, not to mention decades of settled expectations based on those precedents, simply for the comfort of being in the majority and thus immune from the criticism that often results from staking out a dissenting position. We reject Antero's suggestion that alignment with the views of other jurisdictions is a goal in and of itself. When this Court has overruled its own precedent and thereby brought itself into alignment with a contrary majority position, it is because we have determined that the majority position is a "better and more legally sound approach." E.g., State v. Sutherland, 231 W.Va. 410, 418, 745 S.E.2d 448, 456 (2013). Here, in contrast, we conclude that the majority position, although cogent, simply does not align with West Virginia's historical practice, our long-established law, and the actions of our Legislature. In this regard, the rule of law is a foundational principle underlying our democracy, a principle that allows individuals and entities to order their affairs according to well-defined rules. Whatever the relative merits of other jurisdictions' differing approaches to the issue presented in this case, this Court's approach must be based upon established West Virginia law,¹⁴ West Virginia history and practice, the settled expectations of West Virginia citizens, and clear expressions of legislative intent. That is precisely what we did in Wellman, in Estate of Tawney, and in Kellam, and we decline to open the door to the chaos that may well ensue if we abruptly - and without any good reason - change decades of law upon which thousands of people have relied in ordering their economic affairs.

14 As United States District Judge John Preston Bailey recently wrote, "under longstanding West Virginia law, when paying oil and gas royalties, the default rule is that '(1) lessees may not deduct postproduction costs unless the lease agreement explicitly permits such deductions; and '(2) where there is such a provision, only reasonable and actually incurred expenses may be deducted.'" Hopper v. Jay-Bee Oil & Gas, Inc., No. 5:20-CV-101, 2023 WL 3696333, at *4 (N.D. W.Va. Apr. 11, 2023) (emphasis added).

We appreciate the force of Antero's arguments having to do with the possible economic repercussions of our "point of sale" rule; for example, Antero posits that producers may be inclined to focus their operations in other markets where they are not required to absorb all postproduction costs, with the result that mineral owners here may suffer from a decrease in production from West Virginia wells. These are valid points, and reasonable minds could differ if the object of the exercise were to pick winners and losers based on social and economic policy concerns.¹⁵ However, it is not within this Court's remit to decide cases based on policy concerns; that is a task constitutionally delegated to the West Virginia Legislature.¹⁶ See, e.g., MacDonald v. City Hosp., Inc., 227 W.Va. 707, 722 , 715 S.E.2d 405, 420 (2011) ("it is the province of the legislature to determine socially and economically desirable policy") (citation omitted).

15 This is precisely what the Leggett majority did, albeit in dicta, complaining that our "point of sale" rule "results in an even bigger windfall for lessors than the 'marketable product' approach" because the lessor "will receive a royalty valued upon the gas in its processed state at the point of sale after the gas has had value added to it solely at the lessee's expense." Leggett, 239 W.Va. at 276-77, 800 S.E.2d at 862-63 (emphasis added) (citation omitted).

16 Article V, section 1 of the West Virginia Constitution provides in relevant part that "[t]he legislative, executive and judicial departments shall be separate and distinct, so that neither shall exercise the powers properly belonging to either of the others[.]"

For the reasons stated, we decline to interpret, modify, or overrule Wellman and/or Estate of Tawney in whole or in part. Accordingly, we answer the district court's first certified question in the negative and hold that where an oil and gas lease contains an express or implied duty to market, the requirements of Wellman v. Energy Resources, Inc., 210 W.Va. 200, 557 S.E.2d 254 (2001), and Estate of Tawney v. Columbia Natural Resources, L.L.C., 219 W.Va. 266, 633 S.E.2d 22 (2006), extend to the point of sale, not just to the point of marketability or to the first available market.

B. Does the Marketable Product Rule Extend to Royalties on NGLs?

We turn now to the district court's second certified question, which is actually two questions: (1) does the first marketable product rule extend beyond gas to require a lessee to pay royalties on NGLs, and (2) if it does, do the lessors share in the cost of processing, manufacturing, and transporting the NGLs to sale? To begin our discussion, we reiterate that this Court has not adopted a "first marketable product rule" as defined in the Kansas, Colorado, and Oklahoma cases discussed supra. Rather, we confirmed in Kellam that West Virginia is a "marketable product rule" state, meaning that unless the lease provides otherwise, royalties may not be calculated based on the value of the oil and gas at a stage where it is not yet marketable, i.e., at the wellhead, and has not in fact been marketed, i.e., sold to a third-party purchaser in an arms-length transaction. See Wellman, 210 W.Va. at 210, 557 S.E.2d at 264 ("the duty to market embraces the responsibility to get the oil or gas in marketable condition and actually transport it to market.") (emphasis added)).

Although the distinction between the "first marketable product rule," the term used by the district court in the certified question, and the "marketable product rule," as explicated in our precedents, is key to our resolution of the second prong of the certified question, see infra, it is irrelevant to the first prong because Antero specifically acknowledges that "[t]here is no dispute that if the lessee sells the by-products at a profit, it must share royalties with the lessor." (Emphasis added). Thus, we answer the first prong of the second certified question in the affirmative and hold that unless the lease provides otherwise, royalties are payable to the mineral owner/lessor not only from the producer/lessee's sale of wet gas and residue gas but also from the lessee's sale of any byproducts of the wet gas such as natural gas liquids.

C. Whether Deduction for Postproduction Costs on the sale of NGLs is Permissible.

Having held that the marketable product rule extends beyond gas to require a lessee to pay royalties on the sale of NGLs, we now turn to the second prong of the certified question: do the lessors share in the cost of processing, marketing, and transporting the NGLs to sale (and if not, should they)?¹⁷ Antero contends, in accordance with its earlier argument that Kellam implicitly modified the "point of sale" language in Wellman and Estate of Tawney and by doing so transformed West Virginia into a "first marketable product" jurisdiction, that the implied duty to market ends when a producer renders the wet gas marketable at the processing plant, and that any costs incurred thereafter for transporting the residue gas to market and fractionating and transporting the NGLs to market should be shared proportionately by the lessor and the lessee. Because we have declined to adopt the "first marketable product" rule, we must decide whether the "marketable product rule," which Wellman defined as the duty to "explor[e] for, produc[e], market[], and transport[] the product to the point of sale[,]"¹⁸ allows Antero to deduct for its postprocessing costs, specifically, transporting residue gas¹⁹ to market, fractionating wet gas, then transporting the resultant NGLs to market.

17 Although the district court's certified question does not differentiate between wet gas and residue gas, Antero's arguments logically extend to both residue gas and NGLs, because both result from processing and therefore fall within the rubric of "making the [wet] gas marketable."

18 Wellman, 210 W.Va. at 202, 557 S.E.2d at 256, Syl. Pt. 4, in part.

19 Antero represents that residue gas is most often transported to a point of sale which is at an interconnect to a long distance pipeline.

Antero correctly points out that because the gas produced in Wellman and Estate of Tawney was not processed before its sale, those cases are not directly on point. We agree; however, we find that the underlying rationale of those cases applies with equal force to the question before us. In this case, just as in Wellman and Estate of Tawney, we are guided by basic contract principles, including "'[t]he general rule as to oil and gas leases is that such contracts will generally be liberally construed in favor of the lessor, and strictly as against the lessee.' Syllabus Point 1, Martin v. Consolidated Coal & Oil Corp., 101 W.Va. 721, 133 S.E. 626 (1926)." Est. of Tawney, 219 W.Va. at 267, 633 S.E.2d at 23, Syl. Pt. 7. In this regard,

"'[a] valid written instrument which expresses the intent of the parties in plain and unambiguous language is not subject to judicial construction or interpretation but will be applied and enforced according to such intent.' Syllabus Point 1, Cotiga Development Co. v. United Fuel Gas Co., 147 W.Va. 484, 128 S.E.2d 626 (1962). However, when a contract is ambiguous, it is subject to construction. This Court has said that '[t]he term "ambiguity" is defined as language 'reasonably susceptible of two different meanings' or language 'of such doubtful meaning

that reasonable minds might be uncertain or disagree as to its meaning.' Payne v. Weston, 195 W.Va. 502, 507, 466 S.E.2d 161, 166 (1995), quoting Syllabus Point 1, in part, Shamblin v. Nationwide Mut. Ins. Co., 175 W.Va. 337, 332 S.E.2d 639 (1985)."

Est. of Tawney, 219 W.Va. at 272, 633 S.E.2d at 28. Further, "[o]ur interpretive rules of construction regarding ambiguity require that, under such circumstances, we construe the language against the drafter, the party who had the authority and opportunity to bring about clarity." Payne v. Weston, 195 W.Va. 502, 509, 466 S.E.2d 161, 168 (1995) (footnote omitted). Finally, "'[t]he question as to whether a contract is ambiguous is a question of law to be determined by the court.' Syllabus Point 1, in part, Berkeley County Pub. Serv. Dist. v. Vitro Corp. of Am., 152 W.Va. 252, 162 S.E.2d 189 (1968)." Est. of Tawney, 219 W.Va. at 267, 633 S.E.2d at 23, Syl. Pt. 5.

Mindful of these principles, we examine the leases in question in order to address Antero's argument that the Wellman/Estate of Tawney duty to market should extend only to what Antero terms "gas itself," not to its byproducts, i.e., residue gas and NGL's. We begin by noting that the word byproducts is somewhat misleading in this context, as the word is most often used to denote "something that is produced as a result of making something else."²⁰ In the case at bar, nothing is produced or made at the processing facility; rather, the "gas itself" is simply broken down into its component parts. The heavier liquid hydrocarbons are separated from the residue gas, which is then marketed, and the Y-Grade mixture of liquid hydrocarbons is transported to another processing facility where it is fractionated into NGLs, which are then marketed.

20 Byproduct, Cambridge Dictionary Online, https://dictionary.cambridge.org./byproduct (last visited Oct. 21, 2024).

With the foregoing understanding, the dispositive question before us is whether the petitioners' leases contain clear, unambiguous language indicating the parties' agreement that royalties will be paid on the net sale price of residue gas and/or NGLs, i.e., the mineral owners' proportionate share of the sale price less their proportionate share of the costs incurred by the producer after the point at which the wet gas was rendered marketable.²¹ In this regard, Antero contends that the residue gas became marketable at the latest after it was separated from the heavier liquid hydrocarbons in the wet gas, and the NGLs became marketable at the latest after they were fractionated from the wet gas.²² Thus, we now review the language of the leases to determine whether they evidence the parties' agreement that royalties would be determined by whether the gas was sold in its original form ("gas itself") or sold after it had been processed and/or fractionated into its component parts, residue gas and NGLs. See Est. of Tawney, 219 W.Va. at 267, 633 S.E.2d at 23, Syl. Pt. 10 ("Language in an oil and gas lease that is intended to allocate between the lessor and lessee the costs of marketing the product and transporting it to the point of sale must expressly provide that the lessor shall bear some part of the costs incurred between the wellhead and the point of sale, identify with particularity the specific deductions the lessee intends to take from the lessor's royalty (usually 1/8), and indicate the method of calculating the amount to be deducted from the royalty for such post-production costs.") Even a cursory review of the leases at issue in this case leads to the conclusion that they fail the Est. of Tawney test. See id.

21 This was termed a "net-back" or "work-back" methodology for calculating royalties in Leggett, 239 W.Va. at 267-68, 800 S.E.2d at 853-54, although in that case the producers argued that they were entitled to use the methodology to duplicate the price of the gas at the wellhead. Here, Antero seeks to duplicate the price at the point of first marketability, i.e., the processing plant.

22 As noted supra, when gas becomes marketable is a question of fact, and Antero does not concede that the gas from the petitioners' wells was not marketable prior to being processed.

In the Mutschelknaus leases, the lessors' royalty is stated to be a proportionate one-eighth share of the "gas . . . which is marketed and used off the premises." Taken literally, what this language suggests is that royalties are payable only so long as the gas is not sold at the wellhead, which would be an absurd result. Further, nothing in the language suggests that the word "gas" means only unprocessed gas, i.e., what Antero terms "gas itself," because that would lead to another absurd result: that once gas is processed, no further royalties are payable either at the point of marketability or at the point of sale. Even Antero does not contend that the lease may be construed in this way, as it concedes that royalties are payable on NGLs. See text supra. And critically, the leases contain no language, express or implied, that the lessor will be responsible for some portion of postproduction costs once the "gas itself" is processed. In summary, the language of the Mutschelknaus leases is ambiguous with respect to whether, when, and how royalties are payable to the lessor, and completely silent with respect to whether, when, and how postproduction costs may be deducted from the royalties.

In the Matthey lease, the lessors' royalty is stated to be a proportionate one-eighth share of the "gross proceeds received from the sale of the same at the prevailing price for gas sold at the well, for all native gas saved and marketed from the said premises." Taken literally, what this language suggests is that royalties are payable only so long as the gas is sold at the wellhead - the exact opposite of the Mutschelknaus leases - leading to yet another absurd result: that once gas is transported to and marketed from any point beyond the wellhead, no further royalties are payable. Additionally, as was the case with the Mutschelknaus leases, the Matthey lease contains no language, express or implied, that the lessor will be responsible for some portion of postproduction costs; indeed, postproduction costs would not be implicated under this lease since the gas from the lessor's wells would have been sold from the wellhead under a literal application of the language. Finally, as was the case with the Mutschelknaus leases, the language of the Matthey lease is ambiguous with respect to whether, when, and how royalties are payable to the lessor, and completely silent with respect to whether, when, and how postproduction costs may be deducted from the royalties.

Our conclusion that both the Mutchelknaus and Matthey leases fail the Estate of Tawney test is supported by the undisputed fact that once gas is produced from lessors' wells, it is the producer/lessee, not the lessors, who makes all of the critical decisions as to whether to market the gas at the wellhead or downstream; whether and where to process the gas in order to separate the residue gas and thereafter fractionate the remaining wet gas into NGLs; and where to sell the residue gas and the NGLs. Obviously, these decisions are based on the producer's desire to maximize its profits, which is its absolute right and the ultimate goal of any business enterprise. However, where the effect of maximizing the producers' profits is to minimize the owner/lessors' royalties, all on the basis of decisions in which the lessors have no input, fundamental fairness requires that the lessors be on notice that their royalties will vary depending on when, where, and how the producers get the gas to market. This is the underlying rationale of Wellman and Estate of Tawney, which require that such notice be set forth in clear, unambiguous language in the leases which govern the parties' dealings.

For the reasons stated, we answer the second prong of the second certified question in the negative and hold that absent express language in a gas lease sufficient to satisfy the requirements set forth in syllabus point ten of Estate of Tawney v. Columbia Natural Resources, L.L.C., 219 W.Va. 266, 633 S.E.2d 22 (2006), a producer/lessee may not deduct from a mineral owner/lessor's royalties a proportionate share of the costs incurred in processing, fractionating, and transporting residue gas and natural gas liquids to the point of sale.

IV. Conclusion

Based upon our analysis, we answer the certified questions as follows:

Question No. 1: Do the requirements of Wellman v. Energy Resources, Inc., [210 W.Va. 200, 557 S.E.2d 254 (2001)], and Estate of Tawney v. Columbia Natural Resources, [219 W.Va. 266, 633 S.E.2d 22 (2006)], extend only to the "first available market" as opposed to the "point of sale" when the duty to market is implicated?

Answer: No.

Question No. 2: Does the marketable product rule²³ extend beyond gas to require a lessee to pay royalties on natural gas liquids ("NGLs"), and if it does, do the lessors share in the cost of processing, manufacturing, and transporting the NGLs to sale?

23 As set forth supra, we have declined to adopt the "first marketable product rule" and thus modify the district court's question accordingly.

Answer: As to the first part of the question, yes; Wellman's marketable product rule extends beyond gas to require a lessee to pay royalties on NGLs. As to the second part of the question, no; absent express language in the lease to the contrary, the lessors do not share in the cost of processing, manufacturing, and transporting residue gas and NGLs to sale.

Certified Questions Answered.

BUNN, Justice, dissenting:

OF WEST VIRGINIA

I disagree with the majority's opinion in this case. While I do not seek to wholly abandon more than two decades of precedent set forth in Wellman v. Energy Resources, Inc., 210 W.Va. 200, 557 S.E.2d 254 (2001), and expanded in Estate of Tawney v. Columbia Natural Resources, 219 W.Va. 266, 633 S.E.2d 22 (2006),¹ I instead would have decided this case narrowly, based upon the reasoning justifying those cases' outcomes at the time they were decided and in consideration and context of the facts giving rise to those decisions, rather than reading their syllabus points standing alone, as the majority appears to do. See State v. McKinley, 234 W.Va. 143, 149, 764 S.E.2d 303, 309 (2014) (acknowledging that an opinion's "syllabus is not intended to be an exhaustive recitation of every item decided in the case, and must be read in light of the opinion as a whole"); see also Romeo v. Antero Res. Corp., __ W.Va. __, __, __S.E.2d __, (2024) (Walker, J., dissenting) (also quoting McKinley). In answering the certified questions from the United States District Court for the Northern District of West Virginia, I would have interpreted Wellman, and particularly its point of sale language in Syllabus point 4,² to mean that oil and gas producers must bear post-production costs only until the oil or gas reaches the first available point of sale where it can be sold-not to the location where the oil or gas (or byproducts) are actually sold. I further would rein in Tawney's overreach, set forth in its Syllabus point 10,³ that refuses to allow parties to actually contract regarding what, if any, post-production costs may be charged to the royalty owner under an oil and gas lease without including in those leases particular mandatory provisions identified by the Tawney Court. The majority's application of Tawney, and rejection of generally accepted principles of contract law, is particularly troubling here, as the leases at issue do not appear to reflect that the parties contemplated any express or implied duty to market natural gas liquids ("NGLs") when they entered the leases. Instead, I would refuse to apply Tawney to NGLs and further would limit Tawney's application to the type of products considered by that Court. Ultimately, I would not leave West Virginia as an admitted minority of one, where oil and gas producers pay all post-production costs to the actual point that the oil or gas -or byproducts-are actually sold. Maj. op. at 13 (acknowledging "our 'point of sale' rule may make West Virginia a minority of one"). The majority's opinion extends Tawney's "gap filler" provisions, purportedly related to the implied covenant to market, to such an extent that the right to freely contract is not only inhibited, but fully incapacitated by the requirement that the contracting parties must use magic words and clairvoyance to memorialize their arms-length transactions. See SWN Prod. Co., LLC v. Kellam, 247 W.Va. 78, 98, 875 S.E.2d 216, 236 (2022) (Walker, J., dissenting).

1 I agree with much of Justice Walker's well-reasoned dissent in this case where she advocates for overruling our holdings in Wellman v. Energy Resources, Inc., 210 W.Va. 200, 557 S.E.2d 254 (2001), and Estate of Tawney v. Columbia Natural Resources, 219 W.Va. 266, 633 S.E.2d 22 (2006). See Romeo v. Antero Res. Corp., __ W.Va. __, __, __S.E.2d __, (2024) (Walker, J., dissenting). However, rather than fully overruling those cases, as I explain here, I would interpret them based upon their historical underpinnings and applicable facts.

2 "If an oil and gas lease provides for a royalty based on proceeds received by the lessee, unless the lease provides otherwise, the lessee must bear all costs incurred in exploring for, producing, marketing, and transporting the product to the point of sale." Syl. pt. 4, Wellman, 210 W.Va. 200, 557 S.E.2d 254.

3 Tawney provides, in Syllabus point 10:

Language in an oil and gas lease that is intended to allocate between the lessor and lessee the costs of marketing the product and transporting it to the point of sale must expressly provide that the lessor shall bear some part of the costs incurred between the wellhead and the point of sale, identify with particularity the specific deductions the lessee intends to take from the lessor's royalty (usually 1/8), and indicate the method of calculating the amount to be deducted from the royalty for such post-production costs.

219 W.Va. 266, 633 S.E.2d 22.

A. "Marketable" Does Not Mean Sold

Throughout our oil and gas jurisprudence, the Court has discussed the origins of oil and gas producers' duty to market-what it means, how it arose, how it is interpreted, and how it can be express or implied. But an examination of the underpinnings of our case law reveals the Court's repeated emphasis on the role of the producer in getting a product to a marketable condition and to a point of sale-not, necessarily, sold. The majority wrongly rejects this conclusion by determining that a producer complies with its duty to market only by completing the sale of the product (and, in turn, bears post-production costs to that point).

While the majority interprets Wellman, particularly Syllabus point 4, to provide that post-production expenses must be borne by the producer until the product is actually sold, the discussion of "point of sale" and "marketable" in Wellman and its progeny contradicts that interpretation, instead indicating that when the Court originally considered the issues in Wellman, the duty to market was only to make a product marketable, not sold. Certainly, the Wellman Court ultimately concluded that "[i]f an oil and gas lease provides for a royalty based on proceeds received by the lessee, unless the lease provides otherwise, the lessee must bear all costs incurred in exploring for, producing, marketing, and transporting the product to the point of sale." Syl. pt. 4, Wellman, 210 W.Va. 200, 557 S.E.2d 254. Yet, in reaching this holding, as the Wellman Court discussed a producer's duty to market oil and gas for the royalty owner before it announced Syllabus point 4, the Court recognized that producers sought to charge royalty owners with expenses to both transport oil and gas "to a point of sale" and to treat the oil and gas "to put it in a marketable condition," calling these costs collectively "post-production expenses."⁴ Id. at 210, 557 S.E.2d at 264 (emphasis added). In determining what, if any, of these costs must be paid by the producer alone, the Court recognized the duty to market, which could be express (in the lease) or implied, with the rationale being that "the duty to market embraces the responsibility to get the oil or gas in marketable condition and actually transport it to market." Id. (emphasis added). Then, when considering that rationale, the Wellman Court explained that, in West Virginia, "a lessee impliedly covenants that he will market oil or gas produced."⁵ Id. at 211, 557 S.E.2d at 265 (emphasis added) (citing Robert Tucker Donley, The Law of Coal, Oil and Gas in West Virginia and Virginia §§ 70 & 104 (1951)). The language used in Wellman complies with the plain language definition of the term marketable, which Merriam-Webster's Dictionary defines, as its first meaning, as "fit to be offered for sale in a market." Merriam-Webster Online, https://www.merriam-webster.com/dictionary/marketable (last visited Nov. 13, 2024). When reading the Wellman decision as a whole, not just as a stand-alone syllabus point, the Court plainly meant that producers must bear post-production expenses, under the express or implied duty to market, until the product is marketable-not until the product is actually sold.

4 The Wellman Court noted that

there has been an attempt on the part of oil and gas producers in recent years to charge the mineral owner with a pro rata share of various expenses connected with the operation of an oil and gas lease such as the expense of transporting oil and gas to a point of sale, and the expense of treating or altering the oil and gas so as to put it in a marketable condition. To escape the rule that the lessee must pay the costs of discovery and production, these expenses have been referred to as "post-production expenses."

210 W.Va. at 210, 557 S.E.2d at 264.

5 In reaching this conclusion, the Wellman Court cited with approval courts from Kansas, Colorado, and Oklahoma, which the Wellman Court interpreted to, like West Virginia, hold that "a lessee impliedly covenants that he will market oil or gas produced." Wellman, 210 W.Va. at 211, 557 S.E.2d at 265. Courts in Kansas, Colorado, and Oklahoma have expanded the producer's "implied duty to market" gas by creating a "first marketable product" doctrine. Patricia Proctor et. al., Moving Through the Rocky Legal Terrain to Find A "Safe" Royalty Clause or A "New" Market at the Well, 19 Tex. Wesleyan L. Rev. 145, 149 (Fall 2012). Instead of following this trend, the majority now rejects any reliance on those states' authority to assist us with the question before the Court now. Maj. op. at 16.

In Tawney, the Court reiterated Wellman's reasoning, quoting the language from Wellman that the "rationale" regarding the express or implied duty to market "'embraces the responsibility to get the oil or gas in marketable condition and actually transport it to market,'"-which does not include any requirement that the products must be transported to the point where a sale is completed. See Tawney, 219 W.Va. at 271, 633 S.E.2d at 27 (emphasis added) (quoting Wellman, 210 W.Va. at 210, 557 S.E.2d at 264).

Furthermore, the Court-recently-interpreted Wellman's syllabus points to mean that West Virginia is "firmly cemented . . . as a 'marketable product rule' state, meaning that the lessee bears all post-production costs incurred until the product is first rendered marketable, unless otherwise indicated in the subject lease." Kellam, 247 W.Va. at 83, 875 S.E.2d at 221 (emphasis added). As the Supreme Court of Colorado explained, this "first-marketable product rule" provides "that the point where a marketable product is first obtained is the logical point where the exploration and production segment of the oil and gas industry ends, is the point where the primary objective of the lease contract is achieved, and therefore is the logical point for the calculation of royalty." Rogers v. Westerman Farm Co., 29 P.3d 887, 904 (Colo. 2001), as modified on denial of reh'g (Aug. 27, 2001) (quotation marks and citation omitted).

Even considering the Court's prior recognition that post-productions costs are attributable to the producer only until the product is first rendered marketable in Wellman, Tawney, and Kellam, and that the product must be transported to market, not necessarily a final place of sale, the majority continues to interpret the term "the point of sale" quite literally, with a strict construction to mean the very end point of sale, instead of when the product is first able to be sold. Even in its discussion of the words "marketing" and "marketable," the majority appears to purposefully obfuscate the Court's original discussion in Wellman, which was quoted in Tawney, and later explained in Kellam. The majority twists the meaning of the word marketable to mean actually sold.⁶ This construction can lead to potentially ludicrous consequences; as the majority's author suggested through an erudite question at oral argument, the majority's decision could result in the producer bearing all costs for converting products from a well into something entirely different such as plastics, while still having to pay royalty holders a percentage of the sale price, all without that situation being contemplated or bargained for in the lease. In other words, under the majority's approach, where is the logical end for a producer's duty to bear all the costs-or is there one?

6 The Court's lack of flexibility in this case regarding the meaning of "point of sale" is, practically, converse to the Court's construction of these syllabus points in another oil and case decision made this term, Kaess v. BB Land, LLC, No. 23-522, __ W.Va. __, __S.E.2d __(2024). In Kaess, the Court interpreted the wording of Wellman's syllabus points in a loosey-goosey fashion, stretching the meaning of the syllabus points specifically addressing leases with proceeds royalty provisions to extend to leases that are in-kind leases. See generally __ W.Va. __, __S.E.2d. __. As Justice Walker aptly noted in her dissent, which I joined, the majority of the Court in Kaess "muddl[ed] the distinction between different types of leases," ultimately "lo[sing] sight of the fact that the language of the in-kind royalty lease controls." Id. at __, __, __ S.E.2d. at __, (Walker, J. dissenting).

Yet, the majority's reasoning in answering the first certified question appears to be "because we've always done it that way," as the majority interprets the Court's prior case law to mean that that producers must pay post-production costs until the actual sale of the oil, gas, or byproducts, rather than at the first available point of sale, contending that history mandates this interpretation and ultimate result. Maj. op. at 14. This approach rejects a good faith examination of what "point of sale" should and does mean in the broader context of our jurisprudence, is short sighted, and is, in my estimation, results-oriented rather than "legally sound." See State v. Sutherland, 231 W.Va. 410, 417, 745 S.E.2d 448, 456 (2013) (acknowledging that "we will part ways with precedent that is not legally sound"). For these reasons, I dissent from the majority's conclusion that producers must pay post-production costs until the oil or gas, or byproducts, are actually sold, rather than at the first point the oil or gas is able to be sold.

B. Tawney Should Not Apply to NGLs

Turning to the majority's resolution as to the second certified question relating to producers' obligation to pay post-production costs for NGLs until the NGLs are sold, the majority's conclusion of this issue is equally misguided. Because the bedrock principles of the freedom to contract are judicially limited by Tawney, Tawney should be construed narrowly and only applied where necessary; its application is particularly problematic when applied to NGLs given the leases at issue here.

First, Tawney's specific requirements regarding what detailed language must be in a lease before a royalty owner may bear any post-production costs rejects traditional principles of contract law. As the Court recognized long ago, "[i]mplied covenants . . . are only justified on grounds of legal necessity, and to effectuate the purposes of the contract." Allen v. Colonial Oil Co., 92 W.Va. 689, 695, 115 S.E. 842, 844 (1923). However, Tawney's requirements permit courts to "supersede the express terms with an implied covenant." Kellam, 247 W.Va. at 98, 875 S.E.2d at 236 (Walker, J., dissenting). The Tawney Court creates unnecessary roadblocks to the parties' freedom to contract when it defines, in a Syllabus point, the particular language to include in a lease for post-production costs to be shared. Instead of allowing the parties to contract at will, Tawney's Syllabus point 10 provides an almost impossible path for parties seeking to agree that royalty owners will pay any post-production expenses, as the lease "must expressly provide that the lessor shall bear some part of the costs incurred between the wellhead and the point of sale, identify with particularity the specific deductions the lessee intends to take from the lessor's royalty (usually 1/8), and indicate the method of calculating the amount to be deducted from the royalty for such post-production costs." Syl. pt. 10, in part, Tawney, 219 W.Va. 266, 633 S.E.2d 22 (emphasis added).

Still, the Tawney opinion gives no indication that the Court then contemplated any post-production costs outside of the transportation and processing costs of oil and gas; particularly, it gives no indication that its syllabus point would also apply to NGLs, or, specifically "the costs incurred in processing, fractionating, and transporting residue gas and natural gas liquids to the point of sale,"⁷ at the time the Court issued Tawney. Nor does it appear, on the face of the leases at issue here, that the parties to the leases contemplated NGLs at the time the leases were executed. In concluding that these post-production costs for NGLs must be borne entirely by the producers, the majority seems to base its reasoning on the simple idea of basic contract principles, finding the leases are ambiguous and therefore applying Tawney. The majority states that

7 Maj. op. at 23; Syl. pt. 9, in part, id.

the dispositive question before us is whether the petitioners' leases contain clear, unambiguous language indicating the parties' agreement that royalties will be paid on the net sale price of residue gas and/or NGLs, i.e., the mineral owners' proportionate share of the sale price less their proportionate share of the costs incurred by the producer after the point at which the wet gas was rendered marketable.

Maj. op. at 20.

For both leases considered in the certified questions, the majority concludes that the leases are ambiguous as "to whether, when, and how royalties are payable to the lessor, and completely silent with respect to whether, when, and how postproduction costs may be deducted from the royalties." Maj. op. at 22 (repeating this language with respect to both leases). Ultimately, the majority expands Tawney and holds that

absent express language in a gas lease sufficient to satisfy the requirements set forth in syllabus point ten of Estate of Tawney v. Columbia Natural Resources, L.L.C., 219 W.Va. 266, 633 S.E.2d 22 (2006), a producer/lessee may not deduct from a mineral owner/lessor's royalties a proportionate share of the costs incurred in processing, fractionating, and transporting residue gas and natural gas liquids to the point of sale.

Maj. op. at 23; Syl. pt. 9, id. I disagree with this conclusion. I would have decided this case by limiting Tawney's application of lease language requirements only to the types of products discussed in the Tawney opinion, and not expanded its application to novel issues relating to excess post-production costs to an already marketable product to yield refined products like NGLs.⁸ See, e.g., Mittelstaedt v. Santa Fe Mins., Inc., 954 P.2d 1203, 1209 (Okla. 1998) ("We conclude that dehydration costs necessary to make a product marketable, or dehydration within the custom and usage of the lessee's duty to create a marketable product, without provision for cost to lessors in the lease, are expenses not paid from the royalty interest. However, excess dehydration to an already marketable product is to be allocated proportionately to the royalty interest when such costs are reasonable, and when actual royalty revenues are increased in proportion to the costs assessed against the royalty interest. It is the lessee's burden to show that the excess dehydration costs charged against the royalty interest occurred to a marketable product, i.e., that the cost is a post-production cost.").

8 Furthermore, the majority's reliance on Corder v. Antero Resources Corp., 57 F.4th 384 (4th Cir. 2023), to justify its outcome in the case is the epitome of circular reasoning. The majority states that the Fourth Circuit Court of Appeals rejected Antero's "first point of marketability approach" there. Maj. op. at 12 n.11. Yet-as the majority recognizes-in analyzing whether Tawney applied to the leases at issue in that case, the Fourth Circuit concluded that "Because the West Virginia Supreme Court [of Appeals] has not adopted a contrary rule, we conclude that the Tawney requirements apply through the point of sale." Corder, 57 F.4th at 397; Maj. op. at 12 n.11. The majority's analysis amounts to, in simple terms, "this is what the Fourth Circuit said we might do, so we better do it."

In summary, to the extent that the majority contends that its conclusions are merely a simple, logical application of Wellman and Tawney, I disagree. Rather, the majority's answers to the Northern District's certified questions stretch the principles established in these cases well beyond the syllabus points' original contemplation. Accordingly, I respectfully dissent.

Walker, Justice, dissenting:

This certified question proceeding presents a new wrinkle to a perennial problem: how to calculate the landowners' royalty under the terms of a mineral lease. In the underlying case before the district court, the plaintiffs allege that Antero Resources Corporation breached their contracts by deducting post-production costs from their royalty payments; this is one of the most contentious legal issues in the oil and gas industry. "On one side of the spectrum is the established and majority 'at the well' approach, while on the other is the minority 'first marketable product' approach."¹ Today, the majority of this Court selects neither of those options and expands Wellman ² /Tawney's ³ "point of sale" requirement to (1) oil and gas processed and shipped to downstream locations as far away as the Gulf Coast of Louisiana, and (2) enhanced byproducts such as natural gas liquids. Because the majority's holding expands the breadth of an already unsound rule, I respectfully dissent. Oil and gas leases are contracts.⁴ And under West Virginia law, contracts are to be interpreted to carry out the intent of the parties, as that intent is evidenced by the contract's language. I would have taken this opportunity to rewrite the certified questions and overrule our holdings in Wellman/Tawney.

1 William T. Silvia, Slouching Toward Babel: Oklahoma's First Marketable Product Problem, 49 Tulsa L. Rev. 583 (Winter 2013).

2 See Syl. Pt. 4, Wellman v. Energy Res., Inc., 210 W.Va. 200, 557 S.E.2d 254 (2001) ("If an oil and gas lease provides for a royalty based on proceeds received by the lessee, unless the lease provides otherwise, the lessee must bear all costs incurred in exploring for, producing, marketing, and transporting the product to the point of sale.").

3 See Syl. Pt. 10, Estate of Tawney v. Columbia Natural Res., 219 W.Va. 266, 633 S.E.2d 22 (2006) ("Language in an oil and gas lease that is intended to allocate between the lessor and lessee the costs of marketing the product and transporting it to the point of sale must expressly provide that the lessor shall bear some part of the costs incurred between the wellhead and the point of sale, identify with particularity the specific deductions the lessee intends to take from the lessor's royalty (usually 1/8), and indicate the method of calculating the amount to be deducted from the royalty for such post-production costs.").

4 Ascent Res. - Marcellus, LLC v. Huffman, 244 W.Va. 119, 125, 851 S.E.2d 782, 788 (2020); see also Phillip T. Glyptis, Viability of Arbitration Clauses in West Virginia Oil and Gas Leases: It Is All About the Lease!!!, 115 W.Va.L.Rev. 1005, 1007 (2013) ("[A] lease is by definition a contract. All rights and protections are controlled by the principles of contract law and depend on the proper construction.").

Tawney was a mistaken decision, an outlier on the day it was decided and one that's become lonelier with time. Its predecessor Wellman, also wrongly decided, set the stage for what has become two decades of massive judicial revision of oil and gas leases across our State. In Wellman, this Court addressed an action brought by the lessors seeking damages for failure to pay proper royalties.⁵ Similar to the leases at issue here, the leases in Wellman provided for natural gas royalties of "'one-eighth (1/8) of the market value of such gas at the mouth of the well[.]'"⁶ When resolving the question of whether or what expenses were properly deductible, the Court acknowledged the split of authority regarding deduction of post-production costs and the rationale of those states holding that post- production costs are not properly deductible from the lessor's royalty.⁷ The Court noted that under the implied covenant to market, the lessee embraces the responsibility to get the oil or gas in marketable condition and actually transport it to market.⁸ Noting simply that like other marketable product rule states, "West Virginia holds that a lessee impliedly covenants that he will market oil or gas produced[,]" the Court concluded that "unless the lease provides otherwise, the lessee must bear all costs incurred in exploring or, producing, marketing, and transporting the product to the point of sale."⁹

5 Wellman, 210 W.Va. at 204, 557 S.E.2d at 258.

6 Id.

7 Id. at 210, 557 S.E.2d at 264.

8 Id.

9 See note 1.

As I explained in my dissent in SWN Production Company, LLC v. Kellam,¹⁰the weaknesses in Wellman's reasoning are well-known. Simply stated, Wellman based its interpretation of the implied covenant to market on a section from a 1951 treatise that says, "it has been the practice to compensate the landowner by selling the oil by running it to a common carrier and paying to [the landowner] one-eighth of the sale price received."¹¹ But Wellman omitted another section of the treatise that acknowledges that the implied covenant to market does not extend to minerals sold off-site.¹²

10 247 W.Va. 78, 99, 875 S.E.2d 216, 237 (2022) (Walker, J., dissenting).

11 Wellman, 209 W.Va. at 210, 544 S.E.2d at 263 (quoting Robert Donley, The Law of Coal, Oil and Gas in West Virginia and Virginia § 104 (1951)).

12 Kellam, 247 W.Va. at 98, 875 S.E.2d at 236 (Walker, J., dissenting).

In Tawney, this Court compounded the faulty reasoning in Wellman and found the lease's "at the wellhead" language ambiguous because it was "imprecise" and did not "indicate how or by what method the royalty is to be calculated or the gas is to be valued."¹³ Citing the "'general rule as to oil and gas leases . . . that such contracts will generally be liberally construed in favor of the lessor, and strictly as against the lessee,'" the Court then construed the lease against the lessee and held that the "at the wellhead" language was insufficient to allow deduction of post-production expenses.¹⁴ Tawney held that a lease must provide a precise "method of calculating" post-production expenses if a lessee wishes to contract away Wellman's expanded implied covenant to market.¹⁵ But no court should require parties to contract away an implied covenant, much less impose a heightened burden for doing so. Rather, implied covenants are merely gap fillers courts can use to achieve the parties' intentions where not otherwise stated in the contract.

13 Tawney, 219 W.Va. at 272, 633 S.E.2d at 28 (emphasis in original).

14 Id. at 273, 633 S.E.2d at 29 (quoting Syl. Pt. 1, Martin v. Consol. Coal & Oil Corp., 101 W.Va. 721, 133 S.E. 626 (1926)).

15 See note 2.

All in all, Wellman and Tawney are problematic and academic commentators have been unsparing in their criticism.¹⁶ For example, Byron C. Keeling has stated that "Tawney remains a glaring example of an opinion that misapplies the 'against the lessee' rule of lease construction[,]" by not recognizing that the "against the lessee" rule is a rule of last resort.¹⁷ Instead of applying the rule properly, Tawney, uses it to rewrite a "lease to dictate a result that is contrary to its plain terms."¹⁸ But it is not the province of this Court to rewrite an oil and gas lease to reflect the Court's view of a fair bargain. We certainly would not go to such extreme measures to rewrite contracts in any other context.¹⁹ Rather, keeping with our commitment to freedom of contract, we do not add to or subtract from a contract's language or interpolate constraints.

16 See, e.g., John W. Broomes, Waste Not, Want Not: The Marketable Product Rule Violates Public Policy Against Waste of Natural Gas Resources, 63 U. Kan. L. Rev. 149, 173-74 (2014) ("In both Wellman and Tawney, we see West Virginia's unique approach to the deductibility of post-production costs. . . . The more intriguing aspect of the West Virginia rule is the manner in which it clings to pre-deregulation marketing practices. As Professor David Pierce notes in his article, Royalty Jurisprudence: A Tale of Two States, the treatise on which the West Virginia Supreme Court relied so heavily for its pronouncement that West Virginia lessors traditionally received a cost-free royalty out of the sale price was written in 1951 in the midst of the regulatory scheme imposed under the Natural Gas Act of 1938, in which almost all sales of natural gas occurred at the wellhead. Similarly, the Tawney court impugned the lessee, stating, 'although some of the leases below were executed several decades ago, apparently [the lessee] did not begin deducting post-production costs from the lessors' royalty payments until about 1993.' As Pierce observes, this change in the lessee's accounting practices corresponded with the end of the regulatory scheme in 1993. Accordingly, it seems that the West Virginia court failed to consider the effects of regulation and deregulation on the sales and marketing practices of lessees, assuming instead that historical practices from a bygone era of robust regulation represent industry norms even in an unregulated market.") (footnotes omitted).

17 Byron C. Keeling, Contra Proferentem in the Oilpatch? The "Against the Lessee" Rule of Lease Construction, 9 LSU J. Energy L. & Res. 345, 372 (2021).

18 Id. at 375.

19 When examining a contract in an employment dispute, this Court stated that: "Our task is not to rewrite the terms of contract between the parties; instead, we are to enforce it as written." Fraternal Ord. of Police, Lodge No. 69 v. City of Fairmont, 196 W.Va. 97, 101, 468 S.E.2d 712, 716 (1996). In the same fashion, we have held parties to a contract dispute involving an insurance policy to the plain language in the policy and noted that: "'We will not rewrite the terms of the policy; instead, we enforce it as written.'" Auto Club Prop. Cas. Ins. Co. v. Moser, 246 W.Va. 493, 500, 874 S.E.2d 295, 302 (2022) (quoting Payne v. Weston, 195 W.Va. 502, 507, 466 S.E.2d 161, 166 (1995)).

As this Court stated in Leggett v. EQT Production Company,²⁰ commentators have noted that Wellman failed to recognize the variations in the first marketable product doctrine from state to state and adopted yet another, broader version-the "point of sale approach."²¹ This results in an even bigger windfall for lessors than the already less popular marketable product approach.²²

20 239 W.Va. 264, 800 S.E.2d 850 (2017).

21 Id. at 273 n.13, 800 S.E.2d at 859 n.13.

22 Id. at 276, 800 S.E.2d at 862 (citing Byron C. Keeling & Karolyn King Gillespie, The First Marketable Product Doctrine: Just What Is the "Product"?, 37 St. Mary's L.J. 1, 77, 79 (2005)).

So, the question is whether the principle of stare decisis limits our ability to correct what I believe are unsound precedents. The majority sees no reason to "change decades of law upon which thousands of people have relied in ordering their economic affairs." I recognize that "[c]onsiderations in favor of stare decisis are at their acme in cases involving property and contract rights[,]"²³ but it is our duty to examine and overrule prior decisions when they are legally unsound to avoid perpetuating the error. "The reason that the rule of stare decisis was promulgated was on the ground of public policy, and it would be an egregious mistake to allow more harm than good to accrue from it."²⁴ This Court has stated that, "[n]o prior decision is to be reversed without good and sufficient cause; yet the rule is not in any sense ironclad, and the future and permanent good to the public is to be considered, rather than any particular case or interest."²⁵

23 Payne v. Tennessee, 501 U.S. 808, 828 (1991). Even so, the Supreme Court of the United States has recently overruled precedent where the Court's shift threatened vast regulatory and economic consequences. See Janus v. Am. Fed'n State, Cnty. & Mun. Emps., 585 U.S. 878 (2018); id. at 952 (Kagan, J., dissenting) (noting that the Court's opinion called into question "thousands of . . . contracts covering millions of workers"); South Dakota v. Wayfair, Inc., 585 U.S. 162, 186 (2018) (noting the "legitimate" burdens that the Court's overruling of precedent would place on vendors who had started businesses in reliance on a previous decision).

24 Adkins v. St. Francis Hosp., 149 W.Va. 705, 719, 143 S.E.2d 154, 163 (1965) (internal citation and quotation omitted).

25 Id.

Stare decisis does not compel unending adherence to Wellman/Tawney's abuse of judicial authority. The time has come for this Court to overrule those cases for the permanent good of the public. This Court never should have resorted to judicial revision of leases when, even from a basic viewpoint, their plain meaning indicated where royalty calculations should occur. An unfortunate consequence of Wellman/Tawney's modification of the meaning of "at the well" lease clauses is that lessors receive benefits that they do not necessarily deserve under the terms of the contract, at the producers' expense. We cannot pretend to know how producers and royalty owners will respond if this Court overturns Wellman/Tawney, but this uncertainty cannot guide our approach: "And even if we could foresee what will happen, we would have no authority to let that knowledge influence our decision. We can only do our job, which is to interpret the law, apply longstanding principles of stare decisis, and decide this case accordingly."²⁶

26 Dobbs v. Jackson Women's Health Org., 597 U.S. 215, 292 (2022).

The majority goes on to defend Wellman and Tawney by noting that the only post-Tawney case in which this Court evidenced some support for the "industry's attacks" on them was Leggett-a case that dealt with West Virginia Code § 22-6-8 (a statute offering certain protections for royalty owners who hold flat-rate leases²⁷), that was effectively overruled by the Legislature's amendments to the statute.²⁸ The majority attempts to debunk Leggett's criticism of Wellman/Tawney by devoting considerable attention to Kellam's criticism of Leggett. This endeavor is both telling and troubling. If we look beyond the rhetoric of the majority's indignation toward those who recognize the weaknesses of Wellman/Tawney-two dissenting Justices in this case, a plurality of the Court in Leggett, the dissenting Justice in Kellam, and several academic commentators- we see that Kellam does nothing to advance the majority's position because it exposes the flaws of Wellman/Tawney.

27 Flat-rate leases require the producer to pay the royalty owner a set royalty per well, per year, whether that well produces oil and gas or not. In West Virginia Code § 22-6-8, the Legislature provided certain protections for royalty owners who hold flat-rate royalty leases, those "not inherently related to the volume of oil or gas produced or marketed[.]" Id. at § 22-6-8(b). But the Legislature did not extend these statutory protections to freely negotiated proceeds-based royalty leases.

28 While the majority asserts that Wellman's holding was "reaffirmed" by the Legislature's postLeggett amendments to West Virginia Code § 22-6-8, those amendments are irrelevant to the issue before us. The statute does not apply to freely negotiated proceeds-based royalty leases.

In Kellam, the parties agreed that the lessee would pay the lessor royalties based on the sale price "less any charges for transportation, dehydration, and compression paid by the [the lessee] to deliver the oil, gas, and/or coalbed methane gas for sale."²⁹ So, there should have been little room to dispute the unambiguous contract terms: the lessee pays the lessor royalties based on the proceeds minus the listed expenses. But considering Leggett's criticism of Wellman/Tawney, along with their difficult requirements, the parties disputed whether their contract terms cracked Tawney's code to negate an implied covenant. In Kellam, the district court certified two questions, asking whether Tawney was still good law and whether the lease met its requirements. We answered the first question in the affirmative but declined to answer the second question, stating that it presented a question of contract interpretation that could only be answered by examining the lease and applicable principles of contract law.³⁰

29 Kellam, 247 W.Va. at 82, 875 S.E.2d at 220 (emphasis in original).

30 Id. at 90, 875 S.E.2d at 228.

Kellam exposed the Gordian knot this Court created in Wellman/Tawney: when those cases imposed unyielding discriminatory terms to "freely negotiated leases," traditional principles of contract interpretation were turned upside down, leaving practitioners and courts with no clear direction. It is hard to imagine a more unworkable rule. As I said in my dissent in Kellam, it's time we untangle this knot; this Court should "remove all confusion by wiping the slate clean of Wellman and Tawney and allow[] parties to govern their own affairs-as we do in other commercial relationships. We do not need to protect parties from their own contracts."³¹

31 Id. at 99, 875 S.E.2d at 237 (Walker, J., dissenting).

The majority also denies that its holdings extend the Wellman/Tawney doctrine far beyond its original breadth, but they indisputably do. While the phrase "point of sale" is pulled from Wellman/Tawney's syllabus points, those syllabus points "must be read in light of the opinion as a whole."³² Wellman/Tawney dealt with oil and gas produced and sold in a local basin, a vastly different fact pattern than the issue presented here. Antero is processing the oil and gas and shipping it to downstream locations as far away as the Gulf Coast of Louisiana, as well as enhancing it into byproducts such as natural gas liquids. Antero's costs of compression, dehydration, treating, gathering, processing, fractionation, and transportation to move the raw oil and gas from the wellhead to downstream resale locations are considerable post-production costs not contemplated in Wellman/Tawney.

32 State v. McKinley, 234 W.Va. 143, 149, 764 S.E.2d 303, 309 (2014).

West Virginia is the only jurisdiction in the country to adopt this "point of sale" approach. When three members of the majority throw off restraints and set the law on a drastic new course, it is prudent for us to question whether that power has been exercised judiciously or whether it is instead another exercise in judicial activism. Unfortunately, the majority has taken the latter approach in this decision which is the latest in a series of patently wrong rulings in our oil and gas law. For this reason, I dissent.