This article discusses the case law in Oklahoma giving rise to the question of what is required for gas to be a marketable product, the differing view of royalty owners and producers on that question, the uncertainties under the case law, recent changes in the gas industry relevant to the question, and other authorities applicable to the question. The author also proposes a standard to be applied in determining whether gas is a marketable product.
Genesis Of The Issue -
Over twenty years ago, in the 1992 case of Wood v. TXO Production Corp. the Oklahoma Supreme Court held that a lessee’s implied duty to market under an oil and gas lease “involves obtaining a marketable product.” The issue in Wood was whether the lessee could charge its royalty owners for their proportionate share of the costs incurred by the lessee in compressing gas on the leased premises so as to enable the gas to be delivered into the buyer’s line, also located on the leased premises. The court held that cost could not be charged to the lessors under the implied duty to market.
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