The West Virginia Supreme Court held (after rehearing) that reasonable post-production expenses actually incurred are allowable deductions under West Virginia's flat-rate statute, i.e., "that both the legislative intent and language utilized in West Virginia Code § 22-6-8 permits allocation or deduction of reasonable post-production expenses actually incurred by the lessee and more specifically permits use of the 'net-back' or 'work-back' method of royalty calculation.”
In its Syllabus point 8, the Court stated:
8. Royalty 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). The reasonableness of the post-production expenses is a question for the fact-finder.
If you have a question about today's ruling, please reach out to one of the authors of this alert.