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West Virginia Landowners Ask Supreme Court to Hear NatGas Royalties Case

A group of West Virginia landowners has appealed to the U.S. Supreme Court to review a May opinion by the state’s highest court that found natural gas producers can deduct post-production costs from royalty payments.

Specifically, the plaintiffs have asked the high court to review West Virginia Supreme Court Justice Beth Walker’s participation in the case after she was elected last November and voted to rehear the case. The state Supreme Court reversed its previous decision against the industry that prohibited deducting post-production costs to cover marketing expenses, such as compression, dehydration and transmission. The West Virginia justices reached their decision after Walker replaced Justice Brent Benjamin, who wrote the first opinion and has since left the court.

In their petition to the nation’s highest court, attorneys for Katherine Leggett and others wrote that Walker’s husband owned stocks of natural gas and energy companies, “including shares of at least one company whose subsidiary had significant natural gas operations in West Virginia and was a party to several pending cases presenting similar issues.” That, the landowners claim, created a conflict of interest for Walker and violated due process.

The plaintiffs initially filed the case against a subsidiary of EQT Corp., alleging that the company has been wrongly deducting post-production expenses for years. EQT filed a petition for rehearing in the West Virginia Supreme Court last December, arguing that it had misinterpreted state royalties laws, misapplied a previous state Supreme Court ruling on a similar case and exceeded the lower court’s question.

Landowner attorneys discovered a state Ethics Commission disclosure last April before the state Supreme Court issued its reversed opinion, finding that Walker had reported that her spouse owned stock in companies that included Chevron Corp., ConocoPhillips and ExxonMobil Corp., among others. ExxonMobil subsidiary XTO Energy Inc. has assets in the state and could have been affected by a decision in the case, the landowners claim.

Walker told the clerk that there was no conflict of interest and later notified the clerk that her husband had divested his holdings in the energy companies at issue.

Post-production costs have been a thorny issue across the U.S. onshore. The Pennsylvania Attorney General’s office filed a lawsuit in 2015 against Chesapeake Energy Corp., alleging deceptive business practices related to the deductions. Last year, the Ohio Supreme Court ruled that landowners challenging post-production costs must have their cases heard by trial courts on an individual basis.

Even still, the West Virginia landowners’ appeal could be a stretch, given how selective the U.S. Supreme Court is in choosing the cases it hears. The plaintiffs argue in their petition, however, that courts have disagreed about how financial interests should affect a judge’s decision to participate, saying their case offers an “excellent opportunity to dispel the confusion.”

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