Wetzel County EQT Deductions

Our EQT Big 333 well pad went on line in April.  We have received our first two royalty checks. We have a 1901 lease with a flat rate of 1/8th.  Our pooling agreement makes no statement one way or another about deductions of any form.  EQT has been withholding 8-9% for what they list as "Gross Deducts".  For just two months this amount is $905,752.  EQT claims that they are allowed "Deducts" because our original 1901 lease is a "flat lease".  Is anyone else having problems with EQT taking improper deductions?  I know we need to hire a competent O&G attorney... just checking to see if there are enough others in a similar situation to warrant a class action lawsuit.

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Permalink Reply by jason irvine on July 17, 2014 at 9:54am
Something doesn't smell right and this time it ain't the gas
Permalink Reply by PA Joe on July 18, 2014 at 2:49am

Deducts by themselves are reasonable but yours does seem "off". Wetzel Co is wet gas which requires processing (3rd party). Basically, the 3rd party midstream company has to strip out the propane, butane, ethane, etc. So lets say NYMEX gas has price of $4/Mcf; by the time it gets to the the processing company (say MarkWest), they then pay EQT $2 Mc/f (because all the ethane in the gas is worthless right now due to oversupply and limited processing capacity). So the company is paying you based on the price they receive for the product they sell. That part is reasonable i.e., you get paid based on the price the company receives. Often times though companies deduct additional amounts based on the price the pipeline company charges them to gather the gas (bring it to the main pipeline) then again a deduct because the pipeline company charges them a transportation fee to get it to the processing facility. Again this is reasonable, you get paid based on the price they get paid. Because, "if there aint no pipelines, or gathering, or processing", you get zero dollars because the company gets a big fat zero. Here is whats weird about EQT. They own a lot of gathering and pipelines (no processing that I know of). Now, its a separate company but still owned by EQT. I don't know if they own these things in your area or not but if they do it seems to me (and I am no lawyer so this is an uneducated opinion) that you might have some ground to claim they are double dipping you. Dunno, you .definitely want to get a lawyer. Hope this helps.

Permalink Reply by Marcus Huey on July 18, 2014 at 3:31am

Jason & PA Joe, thanks so much for taking the time to respond.  

By taking "Deducts" from our royalty payments, our net royalty rate falls to about 11%.  From internet research I have done, it is my understanding that the MINIMUM royalty a gas company can pay in West Virginia is 12.5%.  If we had a lease with a higher percentage, say 18%, then I could understand EQT taking deductions.  But, again, my understanding is that the royalty payment, by West Virginia law, must not be less than 12.5%. The effective royalty rate that we are receiving, after deductions is about 11%.

Also, I found this from another posting and it appears to apply to my situation:

“WV is a "first marketable product state", so older leases that state "gross royalty at the wellhead" are not allowed to have any gathering, transmission, line loss, compression or any other "post-production costs" deducted from the mineral owner's royalty. 

In most other states, this is not the case and you are correct.  It varies based on each state's laws.

"West Virginia has similarly adopted an extreme version of the first marketable product doctrine. Like the Colorado Supreme Court, the West Virginia Supreme Court has concluded that a lessee must bear all of the transportation costs necessary to deliver its production to a commercial market. In fact, going beyond the Kansas and Oklahoma rule requiring that the lessee bear all costs up to the point where it first acquires a marketable product, the West Virginia court has emphasized that a lessee may not use a workback method to deduct any post-production costs it incurs up to the “point of sale.”"

Permalink Reply by Todd on July 18, 2014 at 4:21pm
Marcus,
I believe I wrote that and I stand by it as it is WV law.
How many wells do you now have on-line?
Good Luck,
Todd
Permalink Reply by Marcus Huey on July 19, 2014 at 7:34am

Todd, We have 7 wells on-line right now.  11 more coming...the last 3 of the 11 are now being fracked. Another 4 well pad was just started. These well pads are on land between Richwood Run and Fallen Timber, near Jacksonburg. If my math is correct the average per well initial production, for the 7 wells, is 6 Mmcf/d. This area was homesteaded by my great great grandfather in the very early 1800s. Of the 7,000 acres he once owned, we still have the minerals for 550 acres. Our families were all VERY large, so the mineral rights have been divided many, many times.  It is a fortunate blessing none the less.  Thanks for your info..very helpful.  Looks like I need to hire an attorney :  /

Permalink Reply by Nancy Mosley on July 19, 2014 at 7:47am
I have a somewhat similar situation in Ritchie that just came to light. I am going to contact National Association of Royalty Owners for ideas. I live out of state but it would probably help to contact the WV legislators who represent Ritchie County. It seems crazy but the companies are doing it.
Permalink Reply by Marcus Huey on July 19, 2014 at 8:44am

Nancy, as I understand it, these gas companies almost always lose in court, but usually all they are required to do is pay the money...no interest or penalty.  They have nothing to lose.  It's a free loan to them.  The legislators in WV are mostly elected to office by oil & gas money, so they are gas company friendly.  

Little relief for the royalty owners :  (

Permalink Reply by Nancy Mosley on July 19, 2014 at 10:14am
Woody Ireland, the representative from Ritchie and Pleasants, is good to the royalty owners and is one himself. But he is only one vote.
0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on July 20, 2014 at 2:32pm

Marcus,

        When you read about theft from the landowners in PA and Michigan, you'll notice that the Attorney General for those two states were the ones that took action against the Oil Producer.

I expect to see theft in Ohio due to the past history of my producer which has the criminal charges in PA & Michigan. My first royalty check from that company has several issues so when I get all the facts together I'll be filling for Theft By Deception with the Ohio Attorney Generals Office. He will be the one to enforce the laws in my state.

In the not to distant future a group of us will file a class action suit since the producer will ignore our leases and pay later as they like to do.

If you have a theft issue, it needs to be addressed early with your Attorney General, otherwise that money could be lost since you ignored the problem and allowed your producer to pencil whip you on your royalty statements.

Here is the WV Attorney Generals Office website: http://www.ago.wv.gov/Pages/default.aspx

He will have a form to file a complaint with, on line or hard copy. They will contact your producer and have them respond to you complaint in writing. I know due to going through the process in Ohio after a backhoe operator decided to raise his hourly rate by 3.5 times our agreed amount. I have a nice letter from the thief to use in court to recover my money.

Do an internet search on your producer to see if they have stolen from land owners in the past. I read an article funded by the National Association Of Royalty Owners from 2006 and the auditor said that most of the 10 companies they looked at practiced theft from the landowners.

Join the National Association Of Royalty Owners (NARO) for advice, which is what I'm going to do now that I'm getting a royalty check.

These Oil Companies will steal royalties from the landowners then go to court and pay only what the judge orders. My goal is to have the business license of all producers that think theft is a good business practice, revoked in Ohio. The people of WV should use the WV's Attorney Generals Office to enforce the laws of your state and kick out those unethical producers. Otherwise they will steal the potentially bright future of the landowners, state government, and people of WV.

Permalink Reply by Kyle Nuttall on July 21, 2014 at 7:48am

Marcus, along with the other excellent advice that's been offered here, you should make a quick read of Tawney vs. Columbia Natural Resources.  The way I read it, and another attorney I do oil and gas work for reads it, they have to specify which deductions they're going to take.

I guarantee that a 1901 flat rate lease will not specify any deductions.  I suspect I've read over a hundred of them, and never seen any deductions mentioned in them.  

I have a couple clients who are getting fed up with deductions being taken from their royalties.  They are clients with multiple mineral holdings.  We're considering putting together a mineral rights organization for West Virginia.  We've just started talking about it today.  Keep in touch.  

Permalink Reply by Marcus Huey on July 21, 2014 at 9:26am

There is definitely strength in numbers, Kyle.  The gas companies know that individually no single mineral holder, or small group of mineral holders, can take them on. But, if we unite, then they will be very afraid. Thanks for all you do for the hard working mineral owner, Kyle!  Almost all of us are just regular folks.

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on July 21, 2014 at 2:53pm

Kyle,

     I have land in several WV counties so you know I'll be interested in an organization that can stop this producer theft.

Count me in when your ready to start up the organization Kyle.   

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