EQT has agreed to pay $53.5 million to settle a federal class-action lawsuit with West Virginia residents who claimed the company was shortchanging them on gas royalty payments by deducting a variety of post-production expenses.
The lawsuit, which included about 9,000 people, was filed in 2013 and a trial was scheduled for November. EQT, which is the second-largest gas producer in the state, will pay the money into a settlement fund and it will be distributed based on factors such as the type of lease held, the amount of gas produced from each well and how much was deducted from royalty checks.
The suit claimed that EQT deducted money from royalty checks for its post-production activities, such as the cost of transporting and processing gas.
EQT, which claimed the deductions were proper, said the settlement demonstrated “the company’s commitment to fostering a good relationship with landowners.
The funds will be paid out to those who leased their gas rights to EQT between Dec. 8, 2009, and Dec. 31, 2017. Payments will be based on the amount of gas produced and how much was deducted for post-production costs.
As part of the agreement, EQT will no longer take post-production deductions on “leases determined by the court to not permit deductions. EQT and the class representatives also agreed that future royalty payments will be based on a clearly defined index pricing methodology.”
Royalty payments have been a big issue in West Virginia, and the state Legislature in March 2018 passed legislation guaranteeing a minimum royalty of 12.5 percent regardless of post-production costs on certain old leases, known as “flat-rate royalty leases.” These leases were signed many years ago, when shallow oil and gas wells were the norm, and a much smaller amount of gas was removed from the leased properties. Flat-rate leases pay a flat annual fee to lessors regardless of whether any mineral was extracted or the amount. Under the new legislation, when drillers seek a permit for activity involving these old leases, deductions cannot be taken.
In modern, production-based leases, the lessees agree to pay the leaseholder a certain percentage of the price paid for the gas. However, certain post-production costs are still permitted if stipulated in the lease.
Post-production costs continue to be a big topic, not only in West Virginia, but also in Pennsylvania and other states with active shale gas drilling where these royalty deductions are allowed.