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PA Water Authority Claims Consol, Noble Wrongfully Deducting Post-Production Fees

A water authority in Southwest Pennsylvania has filed a lawsuit against Consol Energy Inc. and Noble Energy Inc., alleging the operators are wrongfully deducting natural gas post-production costs from royalties and those of private landowners nearby.

The Municipal Authority of Westmoreland County, which oversees the local water system, filed the lawsuit in February in the Westmoreland County Court of Common Pleas, proposing class action status for a case against the companies that it argues could involve more than 100 other private landowners. The case was moved earlier this month to the U.S. District Court for the Western District of Pennsylvania.

Consol purchased the wells in question in 2010 along with mineral rights in the area to continue developing the land. The water authority claims that Dominion Exploration, which formerly owned the wells, never deducted the post-production fees to cover marketing costs, including compression, dehydration and transmission. It also claims Consol didn't deduct the fees until 2011, when it formed a 50/50 Marcellus Shale joint venture (JV) with Noble (see Shale Daily, Aug. 29, 2011).

The JV covers 349,541 acres in Pennsylvania and West Virginia. Neither company commented about the pending litigation.

The lawsuit is the latest of its kind in the state. In December, the Pennsylvania Attorney General's (AG) office filed a lawsuit against Chesapeake Energy Corp. and its affiliates for allegedly deducting post-production fees, while other private class action lawsuits are proceeding against companies that include XTO Energy Inc. (see Shale DailyDec. 9, 2015Sept. 24, 2015).

Shortly after the AG filed its lawsuit, the office said it would not rule out similar action against other producers operating in the state (see Shale DailyDec. 10, 2015). Prior to its legal action, the AG was also said to be expanding its investigation beyond Chesapeake to examine the practices of other producers (see Shale DailyAug. 29, 2014). The cases have prompted state lawmakers to introduce legislation that would shield landowners from the deductions, but those efforts have failed so far (see Shale DailyJune 26, 2015).

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