Exxon Mobil Royalties for Gas Well Products Class Action

When ordinary people permit companies to extract oil or gas from under their land, it’s difficult for them to know if they’re being paid fairly or not. This class action bring suit against Exxon Mobil Corporation, ExxonMobil Oil Corporation, and XTO Energy, Inc. for the “actual, knowing, and willful underpayment or non-payment of royalties on gas from wells through improper accounting measures … and by failing to account for and pay royalties on gas used off the lease…”

Oklahoma law requires that the companies leasing the land bear all costs of bringing the gas and other constituents extracted into marketable condition, that is, into a condition where they can be bought and sold in the market for such products. Royalty owners must only pay a share of the expenses if the products are brought into a higher condition to bring a better price. 

The usual split in revenue is 1/8 to the owner of the land and 7/8 to the company leasing the land. However, the owner of the land does not have access to the company’s records or a say in its accounting processes. Companies generally do not give landowners the details of their accounting processes. In this case, they also do not disclose how much of the extracted gas is being used off the leased premises, on which they also owe royalties. 

The gas from the land is dehydrated and compressed, then gathered into underground lines and sent to processing plants, where it is first separated into two components, methane and fractionated natural gas liquids (NGLs). The complaint alleges that the defendants in this case “improperly deduct the costs after the gathering line inlet … and before the interstate pipeline…” with respect to the Oklahoma Subclass.

The costs at the plant include a treatment cost for the removal of impurities and a processing cost to transform the mixed gas into methane (also known as residue gas), NGL raw make, and (in the Oklahoma Panhandle) crude helium. The NGLs are actually more valuable than the methane, as they’re used in petrochemical processes, but they must be processed into commercially marketable components.  

The complaint alleges that the companies charge for processing to make the NGLs marketable, do not pay royalties on drip condensate, on gas used to fuel this processing, and on other products obtained from the wells, such as helium.

The class for this action is all last successors-in-interest to royalty owners in wells where the defendants in this case, or their predecessors-in-interest, were the operator (or a working interest owner that marketed the gas and paid royalties directly to the royalty owners), payable under any lease that states that royalties will be paid on gas used off the leased premises. 

There is also an Oklahoma Well Subclass.

Article Type: Lawsuit
Topic: Royalties
Tags: Energy, Energy Exploration and Production, Royalties