CHARLESTON, W.Va. The state Supreme Court reversed itself and ruled Friday state law allows natural gas production companies to subtract “reasonable post-production expenses” from royalties it pays property owners who have natural gas wells on their properties.
A ruling last year by the Court said a 1982 state law didn’t allow for the expenses to be subtracted. The opinion, issued Friday afternoon as part of a answer to a certified question from federal court in the Leggett vs. EQT case, comes after the Court voted earlier this year to rehear the question.
Last November’s 3-2 original Supreme Court decision in favor of the plaintiffs was authored by former Justice Brent Benjamin. Justice Beth Walker won last year’s election and replaced Benjamin on the bench. Chief Justice Allen Loughry authored Friday’s opinion.
Loughry wrote in Friday’s order, the majority in last year’s opinion “misapprehend the applicability of certain common law principles and exceeded its charge in its interpretation of the subject statute.”
Loughry said state law allows for companies like EQT to use the “net-back” or “work-back” method to calculate royalties. EQT attorney Dave Hendrickson argued that point before the Court in the May 2 oral arguments.
“It’s a price downstream (the market price at the pipeline), less a cost to get it there. You come up with what the price would be at the wellhead as if you’re selling it at the wellhead and then we give them one-eighth of the proceeds that we receive at the wellhead,” Hendrickson said.
Friday’s opinion also said the legislature’s language in the 1982 law that said mineral owners should be paid the price “at the wellhead” is clear disagreeing with the plaintiffs.
“We disagree fully with its rationale that ‘at the wellhead’ is ambiguous simply because it fails to fully outline allocation of post-production costs,” the opinion said.
The Court’s answer to the post-production cost question will now be forwarded to U.S. District Judge Frederick Stamp who is overseeing the federal case.
Justice Margaret Workman filed a concurring opinion Friday while Justice Robin Davis dissented and reserved the write to file a separate opinion.