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Marcellus Shale Case Settled for Possible $22 Million

A federal judge in Erie, PA, has approved a class action lawsuit settlement that could total more than $22 million in a case filed by thousands of landowners in the Marcellus Shale play against Range Resources Appalachia LLC over royalty calculations.

"I conclude that the terms of the proposed settlement are fair, adequate and reasonable," Judge Sean McLaughlin, U.S. District Court for the Western District of Pennsylvania, wrote in his March 17 opinion on the case Fredrick et al. v. Range Resources et al. (No. 1:08-CV-00288-SJM).

The settlement calls for the creation of a common fund that would consist of an initial cash payment of $1.75 million, of which $1,312,500 would be awarded to the 25,502 plaintiffs in the case, a 75% share. The remaining $437,500 would be paid to lead attorney Joseph Altomare, who represented the plaintiffs.

The plaintiffs would also receive an estimated $16.6 million in future savings from a cap on post-production cost deductions by Range Resources, and Altomare would receive about another $4.2 million from fees over the next five years on gas produced through the plaintiffs' leases at a rate of one-half cent per Mcf.

"We're very pleased," Range Resources spokesman Matt Pitzarella told NGI's Shale Daily on Wednesday. "We think it's in the best interest of our landowners, and it's in our best interest as well because it gives us clarity. The reality is that there were a lot of leases signed in the earlier days of the Marcellus, and there was a gray area as to how some post-production costs can be calculated. This [ruling] provides clarification on that. It's essentially the old industry meeting the new industry."

Pitzarella added that the $16.6 million figure was dependent on several factors, including drilling schedules, future production and gas prices.

Altomare, who practices law from his office in Titusville, PA, could not be reached for comment Wednesday.

Landowners first filed suit in October 2008, alleging that Range Resources violated Pennsylvania's Guaranteed Minimum Royalty Act (GMRA) when the company deducted post-production costs -- namely transporting, processing and marketing -- after natural gas from their property was captured, which lowered royalty payments below the minimum required under the GMRA.

While the suit was pending, the Pennsylvania Supreme Court ruled in a related case, Kilmer v. Elexco Land Services Inc., that companies weren't violating the GMRA when they deducted post-production costs from gross sale proceeds before calculating royalty payments. After the Kilmer decision in March 2010, the plaintiffs in the Frederick case withdrew their challenge to the legality of the post-production cost deductions, and amended their complaint to challenge the way the company was calculating them.

According to court documents, the plaintiffs claimed that Range Resources improperly reduced their royalty payments when the company used the point of sale volume of gas to calculate the gross royalty, rather than using the volume of gas collected at the wellhead. The plaintiffs also alleged that Range Resources adjusted gas volumes by applying temperature and pressure, deducted marketing and management fees and failed to pay royalties on liquid hydrocarbons, which the company sold separately.

McLaughlin described the payment terms as "reasonable" and "innovative," and said the agreement "ensures a monetary benefit to the [plaintiffs] going forward in the nature of a cap on post-production costs."

Another ruling involving the GMRA was handed down recently in U.S. District Court for the Middle District of Pennsylvania, located in Harrisburg. A judge ruled March 8 that landowners who had signed oil and gas leases -- then unsuccessfully sued to have them nullified -- did not "repudiate" the lease terms, and turned down a countersuit by several companies to extend the leases by two years to regain time lost during litigation (see Shale Daily, March 15).

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