Settlement reached in EQT royalty suit

CHARLESTON, W.Va. — A federal judge has given final approval to the settlement of a key natural gas royalty civil suit against EQT. The settlement will cost EQT $53.5 million.

But a delay in issue of the final order appears to have thrown a wrench into the conclusion of a related suit EQT brought against the state Department of Environmental Protection.

The class action royalty suit is called Kay and began in 2013. It is in the U.S. District Court for the Northern District of West Virginia, before Judge John P. Bailey. EQT brought its suit – sitting before a different judge in the same district – against the state in 2018 in response to legislation sparked by EQT’s actions described in the Kay suit and by state Supreme Court action in a third royalty suit, called Leggett.

In Kay, plaintiffs alleged 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.

Plaintiffs and the judge both noted, “The litigation and the settlement negotiations were intense and more than adversarial.”

According to the settlement, all royalty owners in the class will receive a minimum of $200; those receiving more than the minimum will receive a proportionate share of the pool based on the deductions from their leases. They 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.

Class counsel will receive fees of up to one-third of the settlement fund plus litigation costs; the third is about $17.83 million. Class representatives will receive $50,000 each. The documents note that during the six years of litigation, class counsel spent thousands of hours and more than $1 million to pursue the case, and reviewed more than 6 million pages of documents.

The settlement class includes three subclasses: lessors whose flat-rate royalty leases were converted to one-eighth royalty leases under a 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.

Commenting on the settlement, West Virginia Royalty Owners Association President Tom Huber said, “From our perspective, we are very happy the case is finally settled and that EQT is making things right with their lessors by agreeing not to take these deductions and paying royalties going forward in a transparent way. Hopefully this settlement coupled with the change in leadership at EQT can be the start of a mutually beneficial relationship between WV land and mineral owners and EQT.”

The change in leadership Huber referred to is part of the reason EQT is hoping to delay its decision to end the case against the state, called Caperton after the DEP secretary.

The Caperton suit resulted from SB 360, passed in 2018, which overrode a 2017 State Supreme Court decision – issued as an answer to a federal court question – that EQT could deduct post-production expenses from royalties on leases converted from flat rate to 12.5 percent. SB 360 prohibited those deductions.

In suing the DEP, EQT sought to have SB 360 and the entire law prohibiting new permits based on old flat-rate leases declared unconstitutional.

In a February motion to stay the case, EQT said that the Kay settlement may resolve the payment terms under most of its flat-rate leases and may lead to voluntary dismissal of Caperton. Judge Thomas Kleeth agreed and ordered EQT to file a status report no later than July 19.

On July 19, three days before the final order in the Kay settlement, EQT moved to extend the stay until Sept. 17. One reason was that the Kay settlement wasn’t finalized.

The other reason was that on July 10, EQT shareholders voted to change company leadership. The shareholders elected 7 board members supported by Toby and Derek Rice, brothers who previously ran Rice Energy, which EQT acquired. The shareholders also elected five board members approved by the Rice brothers and EQT. The board then named Toby Rice president and CEO.

The Rice brothers led the takeover after expressing discontent with what they termed EQT’s inefficiency and poor profitability in drilling its Marcellus shale holdings.

Reflected in Huber’s comment was the view held by many in the halls of the West Virginia statehouse that EQT, under previous leadership, was an outlier among oil and gas firms represented there, viewed negatively as being difficult to work with and pursuing legislation for its sole benefit – for instance, pushing a repeatedly failed bill to allow forced pooling unless a lease specifically forbids it.

EQT noted in its motion that the DEP doesn’t plan to oppose an extended stay.

But given that Kay was settled three days after EQT filed its motion, The Dominion Post contacted EQT to ask if it planned to modify or withdraw its motion or keep it as is. EQT did not respond to requests made on three separate days.

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