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Important Decision on Oil & Gas Royalty Payment Procedures in WV Issued by Federal District Court in WV

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November 21, 2013

Charleston, WV - A federal district court in West Virginia has issued an important decision regarding oil and gas royalty payment procedures in the state.  The key ruling in this case, granting summary judgment to EQT, is that royalties are not payable on the volumes of gas produced at the wellhead, but on the volume actually marketed and sold by the operator. 

The decision addresses an important issue that was confused or left undecided by prior decisions of the West Virginia Supreme Court of Appeals.  It had been unclear whether previous rulings clearly required payment of royalties on lost and unaccounted for gas (the volume of gas produced at the wellhead).  Judge Joseph R. Goodwin’s analysis of these previous decisions has resulted in his opinion that royalties are payable upon the volume actually marketed and sold by the operator.  The market is the place downstream of the well, where the gas can be sold to a willing buyer and title passed to that buyer.

The decision is another ruling that impacts the legal landscape of the growing natural gas industry in the state of West Virginia, affecting in particular the natural gas drilling and transmission companies and the private property owners to whom these companies pay royalties for the gas below the surface of their land.  As a federal District Court decision, it is not binding on the West Virginia Supreme Court of the Circuit Courts of the state, but nonetheless the decision will be considered important and persuasive in future cases regarding royalty payments.