CHARLESTON, W.Va. — Land and mineral rights owners gathered Monday to push for a bill dealing with post-production expenses on drilling projects.

The push is a response to a state Supreme Court reversal last year on the policy.

The Supreme Court ruled last May that state law allows natural gas production companies to subtract “reasonable post-production expenses” from royalties it pays to people with royalties rights on drilling projects.

A ruling the prior year by the Court said a 1982 state law didn’t allow for the expenses to be subtracted. The court voted to rehear the question and came up with a different interpretation in the Leggett vs. EQT case.

Justice Allen Loughry, who was stripped of his chief justice role this past Friday after a series of controversies over spending extravagances, wrote the reversal for the court.

Tom Huber

“The way we see it is we already knew Justice Loughry likes to steal from the state, and now he likes to steal from royalty owners too,” said Tom Huber, president of the West Virginia Royalty Owners Association.

“This bill is going to stop that.”

Royalty owners, land owners and some representatives of the natural gas industry have been working together on a separate piece of legislation relating to projects where most owners of a single tract want to approve drilling but a minority do not want to approve or can’t be found.

That kind of cooperation is shaping up to be unlikely in this situation.

Anne Blankenship

The post-production expenses bill is likely to receive opposition from the natural gas industry.

“We are not in favor of it,” stated Anne Blankenship, executive director of the West Virginia Oil and Natural Gas Association.

The bill has passed through the Senate’s Committee on Energy, Industry, and Mining. It is now referred to the Judiciary Committee.

Senator Charles Clements, R-Wetzel, appeared at the news conference on Monday to push for Judiciary to take up the bill.

Charles Clements

“I’ve seen the pain of the royalty owners and the people who wanted to have a decent income,” Clements said. “This is their money; it’s not the gas company’s money.

“I think the bill will move. I stand 195 to 200 percent behind this bill.”

The situation the bill is intended to address has evolved over the years as drilling operations have become larger and more complex.

Back in the 1980s, lawmakers passed legislation requiring old flat rate oil and gas leases pay 1/8 royalty to leaseholders on any new drilling permits. The legislation was silent on post-production expenses.

Post-production expenses could include — but not be limited to — costs related to severance taxes, pipelines, surface facilities, telemetry, gathering, dehydration, transportation, fractionation, compression, manufacturing, processing, treating or marketing of oil or natural gas and their constituents.

For 30 years, advocates of the bill contend, practice was to pay the royalty owner a check without subtracting post-production expenses.

Once EQT and other companies started subtracting post-production expenses, the issue went to court.

Patrick Leggett, a royalty owner from West Virginia, filed suit — saying the 1980s statute did not allow post-production expenses to be taken out of the royalty payment.

The Supreme Court at first ruled in his favor.

But in 2016, with a new court that took shape after the election of Justice Beth Walker, the court reversed itself.

The bill up for consideration in the Senate includes language to prevent the 1/8th royalties from being subject to post-production expenses.

Charles Wilfong

Charles Wilfong, president of the West Virginia Farm Bureau, was one of those to speak at Monday’s news conference.

“We think Senate Bill 360 will be a real economic development bill for West Virginia,” Wilfong said. “We need the leadership of the Senate to push this forward. This is something that will help keep this money in West Virginia.”

 

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