Municipal Authority Of Westmoreland County v. Cnx Gas Company, L.L.C.

380 F. Supp. 3d 464 (2019)

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Nature of the Case

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Facts

P owns 2,255 acres of land that it has leased for oil and gas production. P entered into an oil and gas lease with Dominion. Dominion drilled and operated shallow, conventional wells on the leased property from 2002 until 2010. Dominion merged with CONSOL Gas Company in April 2010 and assigned the Lease to CONSOL Gas as part of the purchase and sale agreement. In January 2011, CONSOL Gas merged with D, leaving D as the surviving business entity and sole lessee. D expanded gas operations under the Lease by drilling two unconventional, horizontal wells on the leased property. D and Noble entered a joint operating agreement that terminated in late 2016. Costs associated with bringing natural gas to market after it has been removed from the ground (i.e., from 'wellhead' to point of sale) are referred to in industry vernacular as 'post-production costs.' They include gathering, compression, processing, dehydration, treatment, and transportation of gas. The Lease, as written, ordinarily would permit lessees to deduct post-production costs from royalties owed to P. Dominion did not deduct any post-production costs. From May 2010 through December 2010. It is undisputed that CONSOL Gas did not deduct any post-production costs from P's royalties. The non-deduction of post-production costs continued for nine months into D's tenure as lessee. Beginning with its November 2011 royalty statement for October 2011 gas production, D began to charge P for its pro rata share of post-production costs. Noble also charged P post-production costs. P claims assert that from the time Ds began charging these costs until the end of 2015, Ds have deducted over $3.5 million from its royalties. P sued Ds for breach of contract and conversion. Everyone moved for summary judgment.