CHARLESTON, W.Va. — The West Virginia Supreme Court of Appeals will rehear a case Tuesday regarding drilling rights and if oil companies are allowed to deduct post-production costs from royalty payments to landowners.
In November, the state Supreme Court made a decision in Leggett v. EQT, a case between property owners in Doddridge County and EQT Corporation, a Pittsburgh-based natural gas and petroleum company.
Doddridge County is part of the Marcellus Shale, a natural gas reserve which goes from West Virginia to southern New York. Natural gas drilling is active in northern and central West Virginia.
The court ruled natural gas companies who obtain mineral rights are not allowed to take deductions out of royalty payments set aside for landowners. The landowners — Patrick and Katherine Leggett, Adele McDougal and George McKain — claimed EQT was taking up to 30 percent from royalty payments since 2010.
The plaintiffs argued landowners are owed a one-eighth (12.5 percent) royalty under a 1982 state statute, and EQT was removing funds to pay for costs such as transporting and processing gas
Lawyers representing EQT petitioned in December to have the case reheard, arguing justices misunderstood and extended statutes regarding where revenue was determined.
Property rights advocates held meetings last week in Wheeling, Bridgeport and Charleston to inform the public about the importance of the case.
Tom Huber, vice president of the West Virginia Royalty Owners Association, said if the ruling changes, companies could use money intended for royalties to cover for decreases in prices.
“That’s millions and millions of dollars not paid to West Virginians who work here, live here and shop here, but go directly to the gas company’s headquarters in Oklahoma City and Pennsylvania,” he said.
The rehearing will happen with a new justice; then-Justice Brent Benjamin, who wrote the majority opinion in November, no longer serves on the court after losing in the May 2016 election to Beth Walker in a nonpartisan race. Her term began at the start of 2017.
Tom Susman of West Virginians for Property Rights said a reversal would make the court seem politicized in its decision making.
“It’s kind of like a football game;” he said. “You win and 30 days later the NCAA comes back and says, ‘We want to replay the last quarter.’”
Leggett’s lawyers filed a motion on April 24 to cancel the argument because she did not take part in the original argument and investments her husband, Mike Walker, had in natural gas companies.
Mike Walker made numerous loans to his wife’s campaign amounting to $525,000 while owning stock in “several; different natural gas producing and related energy companies,” though not EQT.
“Justice Walker’s husband has an economic interest in the subject matter in controversy, and an interest that could be substantially affected by this proceeding,” the motion said.
The motion was ordered “moot” on April 26. Beth Walker told court clerk Rory Perry of her decision not to disqualify herself.
If the case is reversed, Huber said the next action is pushing for legislation to protect landowners.
The date of the lease to drill under the property in question was dated October 31, 1906.
Dwayne O’Dell, government affairs director of the West Virginia Farm Bureau, said leases should be allowed to be renegotiated because of advances made in drilling and obtaining technology.
“Horizontal drilling was not envisioned in those leases,” he said.
O’Dell said his organization pushed for changes in the recent legislative session with Senate Bill 576. The bill would have allowed an agreement between a corporation and landowners to be made if at least 75 percent of the tenants agreed on a project, with any opposing property owners being compensated.
“We know that they are missing and unknown individuals that are hard to find or have moved abroad,” he said. “This bill would have allowed that development to go forward.”
The current statute requires 100 percent of landowners for drilling to proceed.
O’Dell said the problem with Senate Bill 576 was it did not include language allowing people to renegotiate leases, including those dating as far back as the “late 1800s, early 1900s with very low rates.”
The Senate passed the bill 19-14, but the House of Delegates Energy Committee did not advance the bill before the end of the 60-day session.
Susman said looking to the rehearing, a reversal is likely considering Walker’s conservative political leanings.
“In the court, you think once there’s a decision, there’s a period of time where that runs,” he said.
The hearing is scheduled to begin at 10 a.m.