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EQT Production, Stone Energy West Virginia Oil and Gas Royalty Payments Class Action

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When you enter into a lease involving mineral rights on your land, how do you know how much money is due to you from the extracted oil and gas? Are you responsible to bear some of the costs of extraction or transportation? What evidence do you receive as to the amount of these costs? The complaint for this class action takes issue with EQT Production Company’s and Stone Energy Corporation’s figuring of costs deducted from royalties due on oil and gas leases on private land.

The class for this action is individual who own oil or gas rights in West Virginia, who have leased those rights, and for whom EQT and Stone are the lessees or assignees of those rights.

EQT and Stone were not the original lessees of mineral rights on plaintiff John S. Starkey’s land. Starkey, who lives in Wetzel County, West Virgina, originally entered into a contract with Chesapeake Appalachia, LLC in 2009. However, EQT and Stone seem to have acquired Chesapeake Appalachia leases in West Virginia and the complaint alleges that they are now deducting post-production costs from the royalties paid to Starkey and, presumably, to other lessors.

The complaint quotes a 1963 case that found that “a distinguishing characteristic of [the landowner’s royalty] is that it is not chargeable with any of the costs of discovery and production.”

A 2001 case, quoted in the same paragraph, notes that “unless the lease provides otherwise, the lessee must bear all costs incurred in exploring for, producing, marketing, and transporting” the gas or oil taken out. The same case requires that “the lessee must prove, by evidence of the type normally developed in legal proceedings requiring an accounting, that he, the lessee, actually incurred such costs and that they were reasonable.”

Finally, the complaint quotes a 2006 case that insists that, if the lessor must share some of the costs, the language in the lease “must expressly provide that the lessor shall bear some part of the costs … identify with particularity the specific deductions … and indicate the method of calculating the amount to be deducted from the royalty” for the costs.

The complaint claims that the language of the lease does not comply with these points, and that it creates ambiguities as to the amount of post-production costs that the companies can deduct and as to the “reasonable depreciation and amortization expenses” they are also permitted to deduct.

The complaint therefore alleges that the companies should not have been deducting anything from the royalties and should have paid the lessors the full amounts.

Among the violations cited are breach of contract, breach of covenant of good faith and fair dealing, conversion, breach of fiduciary duty, and intentional misrepresentation. 

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