MORGANTOWN, W.Va. — If the federal judge approves the settlement, EQT will pay $53.5 million to conclude the natural gas royalty civil suit known as Kay.

The Dominion Post obtained a copy of the settlement proposal following publication of Thursday’s story on Kay and two related suits — Leggett and Caperton — being stayed pending final approval of the Kay settlement. A hearing on final settlement approval is set for July 11.

Kay is a class action suit that began in 2013. It is in the U.S. District Court for the Northern District of West Virginia, before Judge John P. Bailey.

The plaintiffs — the Kay Co. and individual royalty owners H. Dotson Cather and James E. Hamric III, on behalf of a class of royalty owners — alleged that EQT and its midstream and downstream chain of subsidiaries wrongly take deduct post-production expenses and severance taxes from their royalty checks, and do not report the sale of natural gas liquids.

According to the settlement proposal, all royalty owners in the class will receive a claim form after the judge approves the settlement. Those who opt in will receive a portion of the settlement fund — a minimum of $200 — and will give up their right to sue individually for the same claims. Those who opt out get no money but retain the right to sue for the same claims.

The agreement requires that 83 percent of the class participants, based on volumes of gas produced and sold, must opt in or EQT may cancel the deal.

Class counsel will request and seek judge’s approval to receive fees of up to one third of the settlement fund plus litigation costs; the third is about $17.83 million.

EQT says, “The settlement does not mean that any law was broken or that the EQT defendants did anything wrong. The EQT defendants deny all legal claims in this case.”

The settlement class includes three subclasses: lessors whose flat-rate royalty leases were converted to one-eighth royalty leases under state law adopted in 1982; lessors who receive a percentage royalty and whose leases do not permit post-production deductions; and percentage lessors whose leases do permit deductions.

Under the agreement, EQT will no longer take deductions from the royalties of the first two subclasses. The agreement sets a specific deduction rate for the third subclass.

Natural gas liquids aren’t included in the suit but the settlement allows deductions for third-party processing of liquids unless leases specifically forbid them.

Lessors will be paid after the July 11 hearing, but no specific date is offered. The agreement says appeals may follow the hearing and there are no guarantees how soon those might be resolved. “Please be patient.”

West Virginia Royalty Owners Association President Tom Huber commented on the settlement, “While we are happy that EQT has moved to this position we are disappointed that royalties will not be paid on the actual sale price.”

Instead, as the agreement spells out, EQT will base royalties on what is the Texas Eastern M2 — TETCO — index. (The 9,029 Texas Eastern Transmission pipeline system runs from Texas to New York and New Jersey, crossing West Virginia’s Northern Panhandle.)

Huber said TETCO M2 is generally one of the lower priced Appalachian indices.

“That said,” he said, “they are agreeing to no longer take deductions from leases that do not allow for them specifically, and where they are allowed, they are agreeing to a reasonable formula for calculating them.”

Huber concluded with one caution. “All this is pending class approval and that [83 percent] threshold is high, and I am not confident they will get there.”

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