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Class Action Royalties Lawsuit Filed Against XTO in Pennsylvania

Another lawsuit has been filed in Pennsylvania to recover post-production costs deducted from lessor's royalty payments, this time against ExxonMobil Corp. subsidiary XTO Energy Inc.

The lawsuit was filed in U.S. District Court for the Western District of Pennsylvania by a family trust and a family farm that have a combined 303 acres under lease with XTO in Butler County. As lead plaintiffs, the group is also seeking class action certification for its complaint as others have done across the state in similar claims against independent exploration and production companies (see Shale Daily, Jan. 2).

Trustee Richard Marburger and Thiele Family LP allege XTO has breached their leases by deducting post-production costs associated with compression, dehydration and transmission costs. The plaintiffs claim they are owed more than $75,000 in royalties, plus court costs, and are also seeking judgment that would declare XTO's deductions unlawful. The lawsuit also claims that more than 100 landowners with XTO leases in Western Pennsylvania have similar grievances and are owed more than $5 million combined.

XTO has about 500,000 net acres under lease in Pennsylvania. In the past, the company has said its Butler County assets are vital to its operations in the state. Of the 500,000 net acres it has there, 46,000 net acres are located in the county. The plaintiffs claim that the company "has refused to stop deducting expenses in calculating and paying royalties."

At issue are leases executed by Phillips Production Co. that provided for a royalty payment of 12.5% of the value of natural gas produced. The lawsuit claims those leases barred post-production deductions from royalty payments. Phillips, the plaintiffs said, honored those terms until ExxonMobil acquired the company in 2011 and transferred the leases to XTO.

"XTO Energy then disregarded both the language of the leases and the Phillips companies' understanding and course of dealing, and, in breach of the oil and gas leases, XTO Energy began to deduct various expenses in calculating and paying royalties," the lawsuit said.

XTO said it was reviewing the lawsuit, which was filed on Tuesday. It added that its relationship with landowners is “extremely important.”

“We are committed to properly paying our royalty owners under the terms of their leases and applicable state law and regulations,” company spokeswoman Suann Guthrie said.

XTO has not commented about the complaint. But similar cases were prompted by an outcry from Pennsylvania landowners who alleged that Chesapeake Energy Corp. was unfairly deducting post-production costs from royalty checks (see Shale Daily, Feb. 18, 2014). Former Republican Gov. Tom Corbett called for an investigation, which the state attorney general's office started last year (see Shale Daily, March 14, 2014). Earlier this year, Attorney General Kathleen Kane confirmed a wide-ranging royalties investigation involving several producers and said at the time it was nearly complete (see Shale Daily, March 18).

Lawmakers have also introduced legislation that would shield royalty owners from post-production costs with a bill to clarify the guaranteed payment of the statutory minimum of 12.5% of the value of oil and gas produced (see Shale Daily, June 26).

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