Fawcett v. Oil Producers, Inc. of Kansas

The L. Ruth Fawcett Trust (plaintiff), representing mineral-rights owners, leased land to Oil Producers, Inc. of Kansas (defendant) in exchange for royalties on gas sold at the wellhead. Producers sold raw gas at the well to third parties who processed it before it entered interstate pipelines, and Fawcett's royalty was calculated using a formula that deducted the third parties' post-sale processing costs. Fawcett argued that under the marketable-condition rule, gas isn't truly marketable until it reaches the interstate pipeline, so Producers alone should bear those deducted costs, while Producers argued it satisfied its marketing duty simply by selling the gas at the wellhead. The trial court and appeals court both sided with Fawcett, and Producers appealed.