By Molly Johnson
Johnson & Johnson Law Firm
YOUNGSTOWN, Ohio – When natural gas royalties are on the line, contract language can mean millions.
Ohio mineral owners were reminded of this in the recent case Grissom v. Antero Resources Corp., where the Sixth Circuit Court of Appeals affirmed a $10 million judgment in favor of a certified class of Ohio landowner — many of them farmers and small property owners in Noble and Monroe counties.
This case is more than just a win for those plaintiffs. It sets the stage for future mineral owners in their efforts to fight royalty deductions by clarifying a commonly used oil and gas lease provision.
Antero Resources, a Colorado-based energy company, entered into nearly identical leases with hundreds of Ohio landowners, agreeing to pay royalties on oil and gas and associated hydrocarbons extracted and sold from their properties.
The leases contained a common “Market Enhancement Clause,” which prohibited Antero from deducting costs necessary to “transform the product into marketable form,” while allowing deductions that enhanced the value of already marketable products.
It sounds simple, right? Wrong. When Antero’s wells were drilled, more than oil and gas was produced. Also produced were natural gas liquids (a.k.a. “NGLs”) like ethane, propane, butane and isobutane. At the top of the well, these products are essentially one big slurry: the NGLs are indivisible from the natural gas. In order to separate the slurry, processing and fractionation are required. Through processing and fractionation, the NGLs are cooled, separated. Eventually they are sold as individual products.
Antero’s position was that the mineral owners should pay their proportionate share of 1) gathering costs (the costs required to move the slurry of products to the processing plants); 2) processing costs; and 3) fractionation costs (a particular type of processing). The mineral owners believed that Antero, as the driller and producer of the hydrocarbons, was responsible for all of these costs. The Sixth Circuit agreed with the mineral owners.
The court emphasized that a product becomes “marketable” only when it is commercially acceptable — fit for sale in an existing market. The slurry at the wellhead couldn’t be sold because it required processing and fractionation to become individual products that buyers are actually willing to pay for. This means that the driller is responsible for the costs incurred to separate the products.
Likewise, the mineral owners are not responsible for bearing their share of these costs.
The Market Enhancement Clause played a central role. Because it barred deductions for costs to “transform” the product into a marketable form, Antero had to bear those costs. Notably, the court distinguished this lease from others that include “at the wellhead” language, which can allow more deductions. The court did not disturb Antero’s deductions for transporting already marketable products to buyers. So, if the products come “up hole” in truly marketable form, mineral owners may be responsible for bearing their share of transportation costs.
While Grissom answers some questions, it opens the door to others that Ohio courts and landowners may need to confront. What happens when markets change? The ruling ties marketability to the existence of an actual, functional market — not just hypothetical saleability.
Markets can, and do, change as technology and industry practices develop. How far can “enhancement” go? The court said costs that increase the value of an already marketable product may be deductible. But what qualifies? Would storage costs – to wait for better commodity prices – be deductible? What about chemical additives that increase combustion efficiency? The answer may depend on case-specific facts — and future litigation.
This particular case hinged on specific lease language. If Antero — or another producer — wants to allow broader deductions, could it include “at the wellhead” or “net proceeds” language in new leases? Likely yes. The court respected the contract as written, suggesting parties still have freedom to structure these agreements as they see fit.
This ruling may push producers to seek more favorable deduction clauses — or offer lower royalty rates up front. Landowners, in turn, will need to be more vigilant about understanding how contract language affects their bottom line.
This decision doesn’t just affect mineral owners in southeastern Ohio.
As drilling expands into neighboring counties and pipeline infrastructure grows, producers may seek leases across a wider region. Business owners with land holdings, farmers with gas-rich acreage, and even family trusts should all understand how royalty structures work — and what protections a lease can or can’t provide.
If you’re negotiating a lease or reviewing an existing one, Grissom makes one thing clear: words matter. And when millions of dollars in royalties are involved, a well-drafted clause is worth more than just peace of mind — it’s your financial shield.