Keeping an Eye on the Natural Gas Industry is Not Enough

by Duane Nichols on May 27, 2017

Monthly Natural Gas Production 2008 - 2016

Mineral owners seek information about gas well laws

From an Article by David Beard, Morgantown Dominion Post, May 26, 2017

Mineral owners gathered Thursday evening to learn about some potential changes in gas well law that could diminish property rights, and to toss around ideas for action. Most of the talk in the meeting room at the Ramada Inn focused on a state Supreme Court Case called the Leggett Case and an industry-backed Senate bill that may rise from the dead, SB 576.

About 20 people turned out to hear from Tom Susman, representing West Virginians for Property Rights; Tom Huber, vice president of the West Virginia Royalty Owners Association; and Steve Butler, administrator of the West Virginia Farm Bureau.

Leggett Case

In the Leggett case, the Doddridge County plaintiffs sued EQT Corp., alleging it has been wrongly deducting post-production expenses from their royalty checks, amounting to 25-30 percent of their rightful income, since 2010.

Last November, the Supreme Court ruled in favor of the plaintiffs. But on Jan. 1, new Justice Beth Walker replaced Brent Benjamin and the court decided to take up the case again. Rethinking a case is rare, Huber and Susman said, and may indicate the court plans to reverse itself.

The case hinges on state code language mandating royalties be paid on gas extracted “at the wellhead.” As Huber explained, changes in the way gas is sold have clouded the issue. Instead of being sold where it exits the well, gas is now shipped to hubs and sold there. So the court seeks to resolve ambiguity in the meaning of “at the wellhead.”

Huber said that the practice of post-production deductions not only deprives the mineral owner of due income, it can and does lead to negative royalty checks where the company indicates expenses exceed the royalty. The Dominion Post previously wrote about this occurring across the country and described some of the lawsuits that ensued.

“We really feel that this is one of the biggest thefts for royalty owners in the state,” Huber said.

Lewis County mineral owner Tom Kopp further explained to The Dominion Post about his situation. His land has three vertical wells owned by three companies, just a few hundred feet apart. The same amount of gas is produced from each, which gets shipped the same distance. Two companies pay full royalties, but one stopped two years ago, claiming transportation expenses were too high.

When Kopp attempted to dispute the charges, the company threatened to start issuing negative royalties — essentially charging them to take the gas they own.

Huber said that if the court does reverse itself, then mineral owners and their supporters in the Legislature will need to make a full-court press to get some protective legislation pass-ed next session.

“We are at a disadvantage,” he said. “We don’t have the deep pockets. We don’t have the fleets of lawyers.”

WV State Senate Bill 576

SB 576 dealt with two topics. One is cotenancy — owners of a single natural gas tract. It allowed the owners of 75 percent of the royalty interest to consent to a lease, in the face of unconsenting or unlocatable cotenants. This part posed few problems for stakeholders.

The other part did. It dealt with joint development, or forced pooling as some call it. It allowed whole tracts to be pooled into a unit unless a lease specifically forbids it. This gained little support outside of the industry.

The bill passed the Senate, but died in the House. Huber said some fear it may be added to the call of the current special session, or another later this summer. Many agree it will return next January.

Opponents regard joint development as a kind of privatized eminent domain — taking land for commercial gain instead of public benefit.

On the other hand, area gas development companies have been posting Facebook advertisements touting a resurrected version of SB 576 as a way to create jobs and boost the economy.

Butler said that the bill contained no real protections for surface owners. It required compensation, but allowed the owner no say in the location of the well — which could disrupt or destroy the production of a farm.

Huber, Susman and Butlers said they aren’t opposing gas well development. They want fair treatment for royalty owners and surface owners. Susman said this was the fourth meeting they’ve held and they plan more around the state.

They plan to work on a package of bills to protect property owner rights and to develop some educational materials to inform property owners and legislators about the issues and needed legislation.

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West Virginia Top Court Reverses Ruling on Gas Royalties

From the  and WV Public Broadcasting, May 26, 2017

West Virginia’s highest court has reversed its November decision and ruled that natural gas companies can deduct post-production costs from the royalties paid to landowners for mineral rights.

The Supreme Court split 4-1 in its Friday reversal.  At stake is whether landowners or production companies will get more money. West Virginia gas production is starting to boom.

Chief Justice Allen Loughry writes that the court majority now concludes the intent of state legislators and the West Virginia Code language permits deduction “of reasonable post-production expenses actually incurred” by the gas company leasing mineral rights.

The court split 3-2 in its November ruling favoring West Virginia landowners suing EQT Production Co. of Pittsburgh.

A 1982 state law set minimum royalties of 12.5 percent of gas produced at the wellhead.

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