Tug Hill Royalties on Oil and Gas Leases West Virginia Class Action

This class action aims “to recover for the underpayment of royalties and the payment for production owed” under certain oil and gas leases in West Virginia. It brings suit against TH Exploration, LLC, TH Exploration II, LLC, and Tug Hill Operating, LLC, the lessees, alleging that the companies are not providing “clear and accurate information” about the calculation of the royalties owed to the owner of the land.

The plaintiff in this case, Southern Country Farms, originally entered into the lease with Gastar Exploration USA, Inc. in 2008, for oil and gas rights to land in Marshall County, West Virginia. The Tug Hill companies have obtained assignments that makes them the current lessees. The royalties were formerly paid by Gastar and are now paid by Tug Hill.

The complaint raises questions about some of the items on royalty statements, saying, “Upon information and belief, the royalty statements sent to Southern Country by Gastar and Tug Hill were/are deliberately misleading to intentionally conceal and obscure the volume of oil, gas, and related mineral products produced from Southern Country’s property, the price paid for the production and the costs deducted in connection with the royalty calculations.”

The complaint alleges that Gastar and Tug Hill “entered into an agreement with another entity, supposedly a third-party purchaser, to allegedly ‘buy’ the production” from the Southern Country wells. “The alleged third-party purchaser then entered into a separate agreement or agreements with another entity or entities to gather, transport and process the oil and gas production from the Southern Country Lease.” Under these agreements, a percentage of the products from the Southern Country Lease would be retained by the processor.

The complaint claims that the third-party agreements were not legitimate, arm’s-length agreements but “would indirectly include, and thereby pass on to Southern Country and other royalty owners, various costs and reduce the net volume of the oil, gas and associated products produced from the Southern Country Lease.”

Thus, the complaint alleges, Southern Country and other royalty owners are being shorted, first by permitting certain costs to be deducted that should not be deducted under West Virginia law, and second by falsifying the amount of production on which royalties must be paid.

Southern Country has asked Tug Hill for an audit of the calculation of its royalties. The complaint claims that Tug Hill has not agreed to this or adequately responded to Southern Country’s concerns.

The definition of the class for this action is quite long. It includes all lessors of oil and gas leases to which Gastar Exploration USA, Inc. or its affiliates are or were the lessee for property in West Virginia with clauses providing for royalties on oil and gas with certain provisions for figuring the royalties. See the full definition on pages 13 and 14 of the complaint linked below.

Article Type: Lawsuit
Topic: Royalties
Tags: Oil and gas, Royalties, Royalty Payments