Francis Kaess v. BB Land, LLC (Justice Trump, concurring)
Court
West Virginia Supreme Court
Decided
June 6, 2025
Jurisdiction
S
Case Summary
No. 23-522 – Francis Kaess v. BB Land, LLC FILED June 6, 2025 Justice Trump, concurring: released at 3:00 p.m. C. CASEY FORBES, CLERK SUPREME COURT OF APPEALS OF WEST VIRGINIA While I concur in the majority opinion’s answers to the certified questions in this case, I write separately to explain the basis of my judgment. An “in-kind royalty” is one which is paid by lessee’s delivery to the lessor of the lessor’s share of the actual oil or gas produced under the lease, as opposed to a percentage of the proceeds from the sale of the oil or gas produced. A lessor receives an “in-kind royalty” when he or she receives and takes possession of the lessor’s share of the actual oil or gas extracted. See Daniel M. McClure, Developments in Oil and Gas Glass Action Litigation, 52 Inst. on Oil & Gas L. & Tax’n § 3.06[1][a] at 3-24 (2001) (“Under an ‘in kind’ royalty clause, the lessor is entitled to receive a share of the lessee’s actual production: in other words, the lessor is entitled to receive its royalty in the form of oil or gas rather than money.”). With regard to whether there is an implied duty to market in in-kind oil and gas leases, I agree with the majority that the answer to the first certified question is “yes.” A quarter of a century ago, in the case of Wellman v. Energy Resources, Inc., 210 W. Va. 200, 557 S.E.2d 254 (2001), addressing a lessee’s duty to market the oil and gas produced, this Court said, “Like those states [Colorado, Kansas, and Oklahoma], West Virginia holds that a lessee impliedly covenants that he will market oil or gas produced.” Id. at 211, 557 1 S.E.2d at 265. As has been pointed out by my colleagues, the lease at issue in Wellman was a proceeds royalty lease. We are now asked by the district court to answer whether our law is different for “leases containing an in-kind royalty provision” than it is for proceeds leases. I think not. Certainly, in a situation where the lessor is actually receiving his royalty in- kind, by physically taking his proportionate share of the actual oil or gas produced, then it is obvious that the lessee/producer has no implied duty to market the lessor’s share. In that scenario, the lessor will be doing with his or her share of the actual oil or gas produced that which the lessor desires to do with it, and the lessor is not relying on the lessee/producer to market or sell the same; accordingly, the lessee has no duty to do so. But as happens in many cases, including the case from which our certified questions arise, even when a lease may contain “in-kind royalty provisions,” the lessor does not always receive his or her share “in-kind.”1 Under our law, what happens then? Interestingly, even though my colleagues reach opposite conclusions on the answer to this first certified question, they both cite Byron C. Keeling, Fundamentals of Oil and Gas Royalty Calculation, 54 St. Mary’s L.J. 705 (2023), which discusses what the options are when the lessor under an in-kind lease does not physically take his or her share 1 The dissent correctly recognizes that, “Obviously, not all royalty owners have the infrastructure (wells or tanks or pipelines) to store and market their on-eighth share of the oil and gas produced.” 2 of the oil and gas. The options, according to Keeling, include: (1) delivering the lessor’s share to a third party with whom the lessor has made an agreement; (2) the lessee buying the oil or gas from the lessor upon terms to which the parties have agreed; or (3) [I]f the producer does not either buy the royalty owner’s share of the production or deliver the royalty owner’s share of the production to a purchaser free of cost, then under the implied marketing covenant, the producer must market and sell the royalty owner’s share of the production – on the royalty owner’s behalf – along with the producer’s own share of the production. Id. at 711-12 (emphasis added). Unquestionably, at least since our decision in Wellman,2 our law has recognized an implied duty on the part of the lessee to market the oil and gas produced under a proceeds lease. I can see no reason for our law to chart an opposite course for “leases containing an in-kind royalty provision”
Case Summary
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No. 23-522 – Francis Kaess v. BB Land, LLC FILED June 6, 2025 Justice Trump, concurring: released at 3:00 p.m. C. CASEY FORBES, CLERK SUPREME COURT OF APPEALS OF WEST VIRGINIA
While I concur in the majority opinion’s answers to the certified questions in
this case, I write separately to explain the basis of my judgment.
An “in-kind royalty” is one which is paid by lessee’s delivery to the lessor of
the lessor’s share of the actual oil or gas produced under the lease, as opposed to a
percentage of the proceeds from the sale of the oil or gas produced. A lessor receives an
“in-kind royalty” when he or she receives and takes possession of the lessor’s share of the
actual oil or gas extracted. See Daniel M. McClure, Developments in Oil and Gas Glass
Action Litigation, 52 Inst. on Oil & Gas L. & Tax’n § 3.06[1][a] at 3-24 (2001) (“Under an
‘in kind’ royalty clause, the lessor is entitled to receive a share of the lessee’s actual
production: in other words, the lessor is entitled to receive its royalty in the form of oil or
gas rather than money.”).
With regard to whether there is an implied duty to market in in-kind oil and
gas leases, I agree with the majority that the answer to the first certified question is “yes.”
A quarter of a century ago, in the case of Wellman v. Energy Resources, Inc., 210 W. Va.
200, 557 S.E.2d 254 (2001), addressing a lessee’s duty to market the oil and gas produced,
this Court said, “Like those states [Colorado, Kansas, and Oklahoma], West Virginia holds
that a lessee impliedly covenants that he will market oil or gas produced.” Id. at 211, 557
1
S.E.2d at 265. As has been pointed out by my colleagues, the lease at issue in Wellman was
a proceeds royalty lease. We are now asked by the district court to answer whether our law
is different for “leases containing an in-kind royalty provision” than it is for proceeds
leases. I think not.
Certainly, in a situation where the lessor is actually receiving his royalty in-
kind, by physically taking his proportionate share of the actual oil or gas produced, then it
is obvious that the lessee/producer has no implied duty to market the lessor’s share. In that
scenario, the lessor will be doing with his or her share of the actual oil or gas produced that
which the lessor desires to do with it, and the lessor is not relying on the lessee/producer
to market or sell the same; accordingly, the lessee has no duty to do so. But as happens in
many cases, including the case from which our certified questions arise, even when a lease
may contain “in-kind royalty provisions,” the lessor does not always receive his or her
share “in-kind.”1 Under our law, what happens then?
Interestingly, even though my colleagues reach opposite conclusions on the
answer to this first certified question, they both cite Byron C. Keeling, Fundamentals of
Oil and Gas Royalty Calculation, 54 St. Mary’s L.J. 705 (2023), which discusses what the
options are when the lessor under an in-kind lease does not physically take his or her share
1
The dissent correctly recognizes that, “Obviously, not all royalty owners
have the infrastructure (wells or tanks or pipelines) to store and market their on-eighth share of the oil and gas produced.” 2 of the oil and gas. The options, according to Keeling, include: (1) delivering the lessor’s
share to a third party with whom the lessor has made an agreement; (2) the lessee buying
the oil or gas from the lessor upon terms to which the parties have agreed; or
(3) [I]f the producer does not either buy the royalty owner’s
share of the production or deliver the royalty owner’s share of
the production to a purchaser free of cost, then under the
implied marketing covenant, the producer must market and sell
the royalty owner’s share of the production – on the royalty
owner’s behalf – along with the producer’s own share of the
production.
Id. at 711-12 (emphasis added).
Unquestionably, at least since our decision in Wellman,2 our law has
recognized an implied duty on the part of the lessee to market the oil and gas produced
under a proceeds lease. I can see no reason for our law to chart an opposite course for
“leases containing an in-kind royalty provision”
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Date Decided
June 6, 2025
Jurisdiction
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