Sorting out who should pay for the post-production costs related to oil and gas royalties can sometimes ignite heated litigation. When negotiating oil and gas leases, the mineral estate owners and the exploration and production companies often haggle with each other about how certain production costs should be allocated. Even with written oil and gas leases, subsequent conflicts can arise over whether certain deductions are proper and legally defensible.

Such a scenario occurred between Martha Rowan Hyder and family and Chesapeake Exploration and Chesapeake Operating, two affiliates of Chesapeake Energy. The dispute between Chesapeake and the mineral estate owners in the Hyder family centered on whether the oil and gas lease negotiated among the parties allowed for Chesapeake to deduct postproduction costs from the mineral estate owners’ overriding natural gas royalties.

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