CLARKSBURG – EQT Production Company has filed a lawsuit against the West Virginia Department of Environmental Protection, claiming a new law protecting royalty payments is unconstitutional.

EQT currently leases from West Virginia mineral owners the right to drill on identified parcels of land for oil and natural gas and some of those leases are “flat rate” leases that were executed long before West Virginia enacted the Flat-Rate Statute, according to a complaint filed April 12 in U.S. District Court for the Northern District of West Virginia.

Under the terms of the approximately 1,700 leases, EQT is entitled to extract natural gas in exchange for a flat, annual royalty for each producing well that it operates on the leasehold premises, according to the suit.

EQT claims the Flat-Rate Statute infringes on its vested drilling rights under its flat-rate leases and unless EQT accedes to the compensation scheme devised by the Legislature for payment to lessors, the Flat-Rate Statute bars the company from receiving permits to drill or rework any well on such a lease.

The Flat-Rate Statute substantially impairs EQT’s vested drilling rights under its flat-rate leases and imposes unconstitutional conditions on EQT’s exercise of its property rights under those contracts, according to the suit.

EQT claims the statute violates the U.S. Constitution, which says a state can’t make a law impairing the obligation of contracts.

EQT claims the law increases costs and will force the company to look to other states for development opportunities. The company claims if the law was overturned it would “likely apply” for a greater number of permits in the state.

The royalty payment law will take effect May 31. SB 360 was passed in the Legislature in March.

District Judge Irene Keeley has set a planning meeting for June 5 and a scheduling conference for July 3. 

EQT is seeking an order declaring that the Flat-Rate Statute’s permit-prohibition provision, the Flat-Rate Statute’s at-the-wellhead royalty provision and SB 360’s unaffiliated-sale-without-deduction royalty provision all violate the Contract Clause of the U.S. Constitution, as well as the Due Process Clause of the 14th Amendment. The company is also seeking special damages and pre- and post-judgment interest. It is represented by Kannon K. Shanmugam, Katherine M. Turner, Eden Schiffman and Matthew J. Greer of Williams & Connolly; and Timothy M. Miller and Katrina N. Bowers of Babst Calland Clements & Zomnir.

U.S. District Court for the Northern District of West Virginia case number: 1:18-cv-00072

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