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Federal Court Throws Out Bethany Residents’ Natural Gas Unitization Lawsuit

CHARLESTON — A federal judge ruled Wednesday that a lawsuit by property owners in the Northern Panhandle seeking to stop West Virginia’s new natural gas unitization law was invalid, but left open the door for a future lawsuit.

U.S. District Judge John Bailey issued an order Wednesday granting a motion to dismiss a lawsuit filed in May by Bethany residents Scott Sonda and Brian Corwin in the U.S. District Court for the Northern District of West Virginia against Gov. Jim Justice to block Senate Bill 694, relating to oil and natural gas conservation.

In his order, Bailey agreed with attorneys for the Governor’s Office that Justice should not have been sued, given that the Governor was the wrong agency to be sued. Beyond appointing members to the Oil and Gas Conservation Commission, the state board that would make any decision regarding pooling and unitization, the Governor’s Office has no authority over the commission.

“Here, defendant argues that the plaintiffs have ‘failed to identify any provision of SB 694 – or broader statutory scheme – that confers upon the Governor any enforcement authority,'” Bailey wrote. “Because plaintiffs have failed to identify a sufficient relation between the Governor and SB 694 – aside from his constitutional authority to enforce state law, generally – the Governor is entitled to Eleventh Amendment Immunity.”

Bailey also wrote that neither Sonda nor Corwin provided enough facts to show how the provisions of SB 694 had caused them any harm.

“Plaintiffs do not allege that the Commission has unitized their mineral tracts into a horizontal well or even that an operator has applied to unitize their mineral tracts pursuant to SB 694,” Bailey wrote. “As such, plaintiffs have not identified any actual injury sustained as a result of SB 694 or any impending injury sufficient to confer standing.”

Bailey dismissed the lawsuit without prejudice, meaning Sonda and Corwin can re-file the lawsuit at a later time should the provisions of SB 694 cause them harm and against the appropriate state agency.

SB 694 deals with the property rights of surface owners and farmers as it relates to drilling for natural gas and horizontal wells.

The law sets new application requirements for the combination of the tracts for oil and natural gas drilling by operators of horizontal well units. It requires horizontal well units consisting of two or more tracts to get agreements from the mineral rights owners for at least 75% of the net acreage when it comes to interest from the royalties collected.

SB 694 caps horizontal well units at 640 acres per unit, and a unit cannot contain more than 128 net acres controlled by non-consenting royalty owners. The law gives options to non-consenting royalty owners with valid leases, but no utilization provisions for how they wish to be paid: either 25% of the weighted average bonuses or 80% of the average royalty rate percentage.

Non-consenting owners without valid leases can either sell their minerals, participate in the well, subject to a 200% payout penalty, or elect to receive royalty payments three different ways. They could choose to receive 100% of the weighted average bonus received by owners inside the unit within the previous 24 months, the highest royalty rate received by the owners in the unit within 24 months, or mineral owners could be paid through a weighted average sales price or the local monthly index price.

SB 694 was the result of a compromise between the Gas and Oil Association of West Virginia, the West Virginia Royalty Owners Association and the West Virginia Farm Bureau. The West Virginia Surface Owners Rights Organization also didn’t oppose the bill. Disagreements between these organizations led to years of failed attempts to create a forced pooling or unitization law in the state. A similar bill to SB 694, House Bill 2688, died in a 49-49 tie vote in 2015.

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