- Associated Press - Friday, December 23, 2016

CHARLESTON, W.Va. (AP) - A natural gas producer has asked West Virginia’s highest court to reconsider its ruling that would bar gas companies from deducting post-production costs from the royalties paid to landowners for mineral rights.

EQT Production Co., based in Pittsburgh, wants the Supreme Court to withdraw its November ruling and rehear the case.

The question could dramatically alter the way West Virginia landowners are paid for allowing gas companies to operate wells on their property.

Patrick Leggett and several other mineral rights owners sued EQT, arguing the company was improperly deducting fees from royalty payments. The U.S. District Court for the Northern District of West Virginia asked the state’s Supreme Court to rule on what the state law allows.

Leggett owns a farm in Doddridge County where EQT has about 20 wells. He told The State Journal the company deducted 25 to 30 percent from royalty payments since 2010.

The Supreme Court was divided 3-2 in its ruling and the future remains uncertain. Justice Brent Benjamin, who wrote November’s majority decision siding with the landowners, leaves office in January. He will be replaced by Beth Walker, elected in November, who campaigned as a conservative.

The court was asked to analyze a law passed by the West Virginia Legislature in 1982 that established gas companies must pay landowners royalties amounting to a minimum of 12.5 percent of the gas produced at the wellhead. Under older leases, landowners were often paid a small flat-fee, and the lawmakers decided that out-of-state gas companies were treating West Virginians unfairly.

Benjamin wrote in his ruling last month that it would have been “perversely inconsistent” for the legislature to have enacted that law to protect landowners’ royalty rights while intending to allow gas companies to subtract their post-production costs. “The royalty payment is not to be diluted by costs and losses incurred downstream from the wellhead,” he wrote

Justices Robin Jean Davis and Margaret Workman joined in the ruling.

But Justice Allen Loughry, joined in a dissent by Chief Justice Menis Ketchum, wrote that the court majority was “hoodwinked” by the landowners.

He wrote that nothing in state law or legal precedent can be interpreted to mean that landowners have no responsibility to pay part of the cost for transporting the gas off their property. The state law is silent on royalty deductions and the Legislature needs to revisit the issue, Loughry wrote.

In its recent operational forecast, EQT said it plans next year to drill 119 Marcellus wells, including 76 in Pennsylvania and 43 in West Virginia. The company forecasts spending $1.3 billion on well development with cash from operations or on hand.

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