Unpaid Gas Royalties Lawsuits Continue After Virginia Ruling

As the energy industry continues to seek alternatives to imported fossil fuels more and more individuals have begun allowing energy companies to extract oil and gas from their land. Attracted by the promise of earning lucrative royalties from land they would often otherwise use for farming – or nothing at all – thousands of landowners have made agreements with companies such as CNX Gas, EQT Production, Chesapeake Energy and GEP Energy. The companies pay for machinery and production, and in return they keep the profits from any fuel sold, minus a royalty paid to the owner. On paper, it’s a good deal. In reality, it may not be quite what it seems.

Energy companies have reportedly withheld royalty payments.

A worrying trend has developed that casts a shadow over landowners’ agreements. Reports of underpaid or unpaid royalty checks have become more and more common, and have sparked legal action to reclaim money that landowners allege is being withheld in breach of contract, and often for questionable reasons. Energy companies have reportedly withheld royalty payments in full or in part citing production costs, ‘gathering’ costs (the process of mixing gas from various sources), and even the upkeep of interstate pipelines often miles from the landowner’s property. Royalty payments have also allegedly been withheld for gas used to power company machinery - as it was never technically sold, companies have claimed, there is no royalty payment to be made.

It’s not surprising that a number of lawsuits have now been filed.

A Virginia judge, U.S. District Court Judge James P. Jones, recently ruled against two separate energy companies, CNX Gas and EQT Production, that had asked for time to appeal their cases in the Fourth Circuit Court of Appeal. The companies were hoping to overturn several class action lawsuits filed against them by appealing to the higher court to stop the process. Judge Jones, however, was reluctant to pause the suits simply to wait to hear whether the appeals court would consider the cases.

The class action lawsuits were certified in September and cover potentially thousands of class members who claim they are owed more than $30 million in gas royalties by the companies. As part of the lawsuit, plaintiffs are also asking for a full audit of the companies’ accounts to determine the process used to calculate royalty payments.

The certification was followed only days later by the request to overturn the certification, the Bristol News reports. The companies had asked Judge Jones to put the class actions on hold until the time of the court’s decision.

The lawsuits will now continue moving forward while the appeals court decides whether it will consider the suits. Landowners claim they were underpaid when post-production costs, including moving costs, were subtracted from royalty checks. The companies deny any wrongdoing.