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PostHeaderIcon 2016-2017 Review

2016-2017 Review

The last year and a half saw significant changes for West Virginia Royalty Owners. While the developments are largely negative, we here at WVROA want you to know about them and what we see coming on the horizon. There are some significant legislative and judicial fights ahead, and it is important that we get ready now to stand up for property rights and for property owners receiving their fair share from oil and gas production in our state.

Probably the single most significant development was the West Virginia Supreme Court’s reversal of its decision on the Leggett Vs EQT case. For those that do not know, the case centered around what the phrase “at the wellhead” in the 1/8th statute allowed as far as post production expenses are concerned. The law passed in 1982 mandated that before any new permit for re-drilling, reworking or drilling a new well was issued on old flat rate leases, the operator had to file an affidavit agreeing to pay 1/8th royalty. It is WVROA’s position that Tawney mandates deductions are only allowed when specifically agreed to, and we filed an Amicus Brief supporting the Leggett’s position.

EQT was taking deductions on wells drilled under that statute. In November of 2016, Justice Benjamin wrote a 3-2 decision saying EQT was not allowed to deduct from those royalties and the Tawney Decision applied to “at the wellhead” However, the day after Justice Benjamin was replaced on the court by Beth Walker, EQT filed a rehearing under dubious reasoning. Justice Walker, Justice Ketchum, and Justice Loughrie voted in a 3-2 decision to rehear the case, and the court has now reversed the decision. Now, flat rate leases permit taking post production deductions from the 1/8th royalty on new wells, including horizontal wells.

For those of you that say, “Well I am not held by a flat rate lease so this doesn’t affect me” I would point out that EQT has already submitted for certification to the WV Supreme court a question attempting to overturn Tawney using the Leggett decision, and the court seems poised to once again side with out of state producers over West Virginia property owners. We here at WVROA will fight them every step of the way and our number one priority is to protect the Tawney Decision and to stop gas companies from deducting expenses where the royalty owner did not agree to them.

Another major blow came out of the Tyler County Circuit Court in the Ascent Resources Case, where Judge Hummel decided that every lease has an implied right to pool unless specifically prohibited by the lease. Essentially, he decided that there is no need or duty for producers to open up negotiations on old leases when forming a unit for horizontal drilling, effectively eliminating the lease modification process. We do not anticipate the WV Supreme Court will differ in its view from Judge Hummel, as this new court seems intent on giving the gas industry everything it failed to pass through the legislature for the past decade.

It was with those two cases in mind that we developed our legislative strategy for the 2017 Regular Session. As many of you know after initially fighting against SB 576, we negotiated a compromise bill with industry and strongly supported it. We made the calculation that the courts would rule in favor of industry on a variety of issues, but were able to trade off the implied right to pool from the Ascent Case for the implied right to no post production expenses on new wells, which we felt protected the Tawney decision and would overturn a bad Leggett decision. It surprised many that we made the deal as many other groups could not accept it, but as it was a few years ago when HB 2688 failed, the forced pooling stakeholder’s bill, we maximized our leverage to get the best deal possible and then took the deal. The deal was not as good as HB 2688, but every year the courts erode our rights, and therefore our leverage. But once again, like HB 2688 before it, SB 576 failed due to strong opposition from other groups.

The WV Supreme court also sided with Gastar on the issue of who has the right to grant pooling rights, deciding that the owners of the executive leasing rights also had the exclusive rights to pooling. Also, there is a case involving the language often contained in leases about adjacent acreage allows for pooling, the Kanawha County Court has ruled that the this language gives the gas companies the right to pool.

We here at WVROA will continue to fight in the legislature for a good accounting and check stub bill, fixing the 1/8th statute to prevent deductions from old leases, and to oppose any co-tenency/joint development/lease integration/forced pooling bills that do not adequately protect the royalty owner from being bullied into bad agreements and respect our property rights. We feel that IF industry wants something along these lines, the legislature should condition passage of any bill on reversal of the terrible Leggett Decision. It’s long overdue that West Virginians stop out of state corporations from sucking the wealth from its people and property, leaving so very little behind when they return to their home state.


PostHeaderIcon What Post Production Deductions will Do to YOU

How Post Production Deductions Affect Your Royalty Check

We advocate a cost free royalty clause whenever someone asks about a lease, so the question is what really are “Post Production Costs”?  Here is a list of some of the deductions we recently saw on a royalty check:

Compression Fee (3 different types)

Fractionation Fee

Marcellus Cone Gathering System Charges

Marcellus Flat Fee Production ($1.20)

Marcellus Post Production Cost (3 different types)

Marketing Fee

Plant Processing Fee (2 different types)

Transportation (2 different types)

This is how much a simple 12.5% royalty would be impacted by allowing for post-production costs.

Value Column Total






Net Column Total



Unitized Royalty Percentage



Take Home Check



Net Royalty




This Royalty Owner would lose $1,274.53 a MONTH! Over HALF of what they should have gotten.


PostHeaderIcon Leasing Clauses to Look for

Top Leasing Clauses to Include or Remove!

1.  Specific Depth Reservation

· Lease only the Marcellus, or only the shallow formations; never lease the surface to center of the earth.

2.  Lease only Your Tract

· Avoid language that includes words such as adjacent, or contiguous; it can allow them to hold your tract even though there is no production.

3.  Your Royalty Payments are Deduction Free

· Deductions or post production expenses on royalty payments can reduce a 12.5% lease to under 6%.

4.  Avoid Enhancement Clauses

· Enhancement clauses have been used against royalty owner’s under the guise of ‘The gas is not marketable at the well head, so transportation is an enhancement’; even if your lease says deduction free.

5.  Pugh Clause

· If a portion of your acreage is not included in a unit, the non-developed acreage is released, allowing for another company to potentially develop it.

6.  Warranty of Title

· Do not give any warranty on your title, in most cases you haven’t done title and they have approached you wanting to lease.

7.  Limit on Shut in Payments

· Put a time limit for how long a shut in payment can hold your lease in full effect.

8. ALWAYS Consult a Lawyer

· These are a few things to watch for and should not be considered legal advice, find a good oil and gas lawyer that will be able to assist in the leasing process.