MORGANTOWN, W.Va. — Oil and gas producer EQT has ended its suit against the state Department of Environmental Protection that aimed to have legislation forbidding deductions from certain drilling leases declared unconstitutional.

EQT filed its motion on to dismiss the case on Friday. Judge Thomas Kleeh of the U.S. District Court for the Northern District of West Virginia issued his order on Tuesday.

This case was one of a trio of cases all dealing with deduction of pro-production expenses from royalty checks for mineral owners who had old-style flat-rate leases converted to percentage leases under 1982 legislation.

This suit arose in April 2018 shortly after passage of Senate Bill 360, which was a response to the state Supreme Court’s about-face in one of the other related cases, called Leggett.

In answering a question from a federal court, the Supreme Court in 2016 determined in “Leggett 1” that EQT could not deduct post-production expenses from royalties on the leases in question. Then in 2017, in “Leggett 2,” with a new justice on board, in changed its answer and said that’s OK. (Leggett 1 and 2 are the same case but are used to identify the different Supreme Court opinions.)

Following Leggett 2, Senate Bill 360 prohibited those deductions. Leggett was stayed in February as this case and another, called Kay, worked through the system.

Kay was a class action suit begun in 2013, alleging that EQT and its midstream and downstream chain of subsidiaries wrongly deducted post-production expenses and severance taxes from their royalty checks, and did not report the sale of natural gas liquids. It was settled in July, costing EQT $53.5 million.

EQT had been considering dropping the lawsuit pending the settlement of Kay and filed this year for two extensions to make its decision about Caperton. The first came and was granted in February, the second in July, just days before the Kay settlement was completed.

In the second stay, Kleeh gave EQT until Sept. 17 so EQT’s new leadership could evaluate the case and make a decision. EQT made its decision just over two weeks before the deadline.

EQT commented on the case in an email exchange: “We filed a motion to voluntarily dismiss the lawsuit on August 30, and our motion has been granted. The dismissal is consistent with CEO Toby Rice’s intention for EQT to better partner with West Virginia to benefit all stakeholders, including our landowners, our business partners, our suppliers, the communities where we operate and the state in general.”
That reflects the outlook new EQT President and CEO Toby Rice expressed to a crowd of landowners at a recent town hall in Bridgeport. He told them: “One thing that’s changed, we care about our landowners,” he said. “We want to be good partners. … We believe in a different way to run an oil and gas business.”

Valerie Antonette, vice president of Bounty Minerals Management and President of National Association of Royalty Owners Appalachia, offered a comment in an email exchange: “Bounty Minerals and the members of NARO Appalachia are pleased with EQT’s decision to withdraw its lawsuit. We look forward to working with EQT going forward with its new focus on its land and mineral owners.”

The DEP declined to comment on the conclusion of the case.

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