EQT offered arguments why its federal court lawsuit shouldn’t be dismissed.
EQT filed its lawsuit against state
The most recent filing is EQT’s memorandum opposing Caperton’s motion.
Royalty owners have publicly worried that an EQT victory in this case could set the state to topple a broader court ruling applying to deductions from all royalties.
The law being challenged was created via SB 360 during the 2018 legislative session. It was drafted to counter a state Supreme Court ruling, in a case called Leggett, allowing gas producers to deduct post-production expenses from royalties on wells drilled on certain types of leases.
Specifically, under a 1982 law, new wells drilled under old flat-rate leases wouldn’t be permitted unless the new wells were paid based on volume — a one-eighth royalty. Through federal deregulation, gas once sold at the point of extraction is now sold further down the pipeline after being processed. EQT and other producers deduct the processing costs.
SB 360, which took effect
EQT contends that the law violates the
* Caperton argued that EQT’s suit, by naming him in his capacity as secretary and seeking monetary damages, violates the 11th Amendment of the
EQT counters that the law puts a state permit in front of its right to extract gas, so it has no recourse but to sue the state.
* Caperton said the law doesn’t impair EQT’s contractual rights. It doesn’t stop EQT from drilling; it just modifies royalty payments to stop EQT’s “windfall profits” from changes in how gas is sold. Guarding the royalty owners’ interests serves a legitimate public purpose.
He also argues that the federal Contract Clause doesn’t bar states from exercising their police powers for the public good, even when those powers affect existing contracts.
EQT counters that the law alters a specific, bargained-for payment term by conditioning permits on a modification of those payments. The landowners agreed to a certain safe, fixed payment and EQT took the risks of extracting the gas and developing new technologies.
The law doesn’t benefit the general public, EQT said, only a small group of royalty owners. It is those landowners, not EQT, that are seeing windfall profits.
“Rather than limiting lessors to the gains they expected to receive … the Flat-Rate statute bestows on lessors a more lucrative extraction-based royalty that they could not possibly have expected,” EQT said.
* Caperton argues that at the time of the original leases, some of them 100 years ago, companies were drilling for oil and gas was a cheap waste product. The parties couldn’t have known about technological advances or the increased value of gas.
EQT argued, again, that the landowners traded a safe income for EQT’s risks, and that by fixing a price for gas (including free gas for home use), the landowners understood the value of gas.
While this case has limited application to certain old leases,
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