‘At the wellhead’ language key in gas royalties case

CHARLESTON, W.Va. — A significant natural gas royalties case to be decided by the state Supreme Court could come down to three words “at the wellhead.”

The Court conducted a rehearing of the Leggett vs EQT Production case Tuesday morning in Charleston. A 3-2 ruling last year said gas companies, like Pennsylvania-based EQT, could not subtract post-production costs from royalties paid to property owners with natural gas wells on their properties.

A lot of Tuesday’s rehearing was spent on the “at the wellhead” language included in a 1982 state law that said companies had to pay landowners 12.5 percent (one-eighth) of the price of the gas produced at the wellhead. Before 1982, landowners were paid flat fees that were considered very low. The plaintiffs contend EQT has been paying landowners a lot less than what The gas is worth because post-production costs are figured in.

EQT attorney Dave Hendrickson told the court his client and other companies use the net-back method to determine the wellhead price.

“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.

But the 1982 law doesn’t allow for that type of pricing, according to plaintiff’s attorney Marvin Masters.

“If you really look at it (the 1982 law), it doesn’t say anything about taking deductions. In other words, you have to write stuff in for them. You have to write in, ‘Yeah, you’re entitled to take deductions,'” Masters said.

He further argued the 1982 “at the wellhead” language is ambiguous but the law was remedial.

“The remedy was to make sure that the lessee gets not less than one-eighth the total amount paid to, received by (the gas company). They aren’t getting that (now),” Masters said.

Hendrickson told the Court the statute speaks for itself.

“If you look at the plain meaning of the statute and you interrupt the plain meaning of the statute ‘at the wellhead’ is crystal clear,” he said. “They (legislature) recognized that as a sales point of the gas in 1982. That was the common law. That was the statutory law and what we’re doing is merely complying with the statute.”

Hendrickson also told the Court the statute has never been amended by the legislature.

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. She listened Tuesday but didn’t ask any questions during the arguments. Justice Robin Davis was not present in the courtroom Tuesday but took part in the argument over the phone.

The royalties issue is also part of a federal court case that focuses more on the post-production charges.

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