Court Opinion

ID: 7125347
Source: CourtListenerOpinion
Date Created: 2022-07-24 13:05:50.50002+00
Date Added: 2024-06-11T12:48:34.161367
License: Public Domain

McAnany, J.,
concurring: I concur with Judge Green’s analysis in this case. We are asked to decide whether tire proceeds to be divided among royalty holders from the sale of gas at the wellhead are the gross proceeds from the sale or the net proceeds after deducting charges incurred by the buyer for treating the gas after the point of sale. Setting aside public policy issues, the position taken by the appellant, Oil Producers, Inc. of Kansas, on this central issue is marked by a level of simplicity and clarity that avoids the morass of resolving the issue of marketability. OPIK argues: “The duty to market in Kansas has only ever required operators to produce a saleable gas product and market and sell it free of cost to the royalty owner.” According to OPIK, if a product can be sold, it ipso facto is marketable. Thus, the proceeds of the sale subject to distribution among the royalty interest holders were the net sale proceeds.
But a demand curve can be drawn for any item that may be subject to a commercial transaction. I do not ascribe to the notion that because there is some point on every such curve where somebody would be willing to pay for the item, each and eveiy item passes the test of marketability. Under that test, the notion of marketability becomes superfluous. That seems to defy a level of common sense that even judges are expected to bring to the discussion.
Besides, our Supreme Court spoke to the issue of marketability in Sternberger v. Marathon Oil Co., 257 Kan. 315, Syl. ¶ 3, 894 P.2d 788 (1995), when the court stated:
*209“Under a natural gas lease, once a marketable product is obtained, reasonable costs incurred to transport or enhance the value of tire marketable gas may be charged against nonworking interest owners. The lessee has the burden of proving the reasonableness of the costs. Absent a contract providing to the contrary, a non-working interest holder is not obligated to bear any share of production expense, such as compressing, transporting, and processing, undertaken to transform gas into a marketable product.’’ (Emphasis added.)
While the expense at issue in Stemberger was the cost of a gas gathering pipeline system, we cannot ignore this language on marketability from the syllabus, which is there to set forth a point decided in the case. See K.S.A. 20-111.
Finally, I write separately to clarify my position inartfully expressed in Davis v. Key Gas Corp., 34 Kan. App. 2d 728, 743, 124 P.3d 96 (2005), rev. denied 281 Kan. 1377 (2006). While Key Gas dealt with transportation and other expenses charged back against the royalty interest holders, attention seemed to me to be focused at the time on the transportation issue. My dissent was directed solely to the majority’s handling of that issue and not the issue of other expenses charged back, though one would have a hard time detecting that from what I wrote. In the case now before us, transportation costs are not at issue, so I concur with Judge Green’s use of Key Gas in considering the other expenses deducted from the royalty payments.