Court Opinion

ID: 5284285
Source: CourtListenerOpinion
Date Created: 2022-01-07 02:38:52.10494+00
Date Added: 2024-06-11T08:28:31.610155
License: Public Domain

VENTERS, J.,
CONCURRING:
I concur with the majority opinion. However, while I find it relevant that KRS Chapter 143A identifies the producer (here, EQT) rather than the royalty owner (Appalachian Land) as the ultimate taxpayer, I further believe that the calculation of the royalty is less a question of legislative intent and statutory construction, and more a question of construing the mineral *849lease and carrying out the expectations of the parties in a world where there is no longer a “market price of gas at the well.”
In the absence of an actual market price at the well, the industry must resort to the method we described in Baker v. Magnum Hunter Production, Inc., — S.W.3d(Ky.2015), which involves deducting the producer’s postextraction costs for processing and transporting the gas from the final market price to arrive at a proxy for the “market price at the well.” After reviewing that method, I am convinced that the severance tax is not a true cost of production in the economic sense. Certainly, it is an accounting expense that is paid by the producer; and certainly it reduces, or-may even eliminate, the profitability of extracting the gas. But it is not a cost of production; it is not an expense incurred to convert the raw gas into a final product; the tax adds no value to the final product.
The severance tax is simply a tax assessed on the sale of gas after the production process has been completed. Therefore, I agree that in calculating the royalty due, the severance tax should not be included as part of the postextraction production costs deducted from the final sales price.
Noble, J., joins.