by George Hohmann
Daily Mail business editor
www.dailymail.com
Lawsuits similar to the case against Chesapeake Energy Corp. and NiSource Inc. that resulted in a $404.3 million jury verdict have been filed against two other big West Virginia natural gas producers.
Royalty owners also are suing Dominion Resources and Equitable Resources, claiming they were cheated out of natural gas royalties.
Marvin Masters of the Masters Law Firm in Charleston is one of the plaintiffs' lawyers in all three cases. "It's pretty straightforward," he said. "The leases provide for payment of a certain percentage to the royalty owner and a certain percentage to the gas company. It's like your paycheck -- you're guaranteed paid a certain amount. These royalty owners are entitled to be paid a certain amount."
The Roane County lawsuit, known as the Tawney case, involved 10,440 individuals and businesses that are royalty owners, Masters said.
The case was filed in 2003. On Jan. 27 of this year a jury handed down a verdict that said NiSource, Chesapeake Energy and Columbia Natural Resources had cheated the royalty owners out of $134.3 million in natural gas royalties.
The jury also said the companies had committed fraud and awarded the landowners $270 million in punitive damages.
The jury's verdict and its award of damages are subject to review by the court. The verdict could be upheld, set aside or reduced. NiSource has said it would appeal any adverse judgment.
NiSource has called the Roane County jury verdict "unprecedented and excessive." Chesapeake spokesman Scott Rotruck has said, "Nobody could imagine an award so high. It's almost like capital punishment for a parking violation."
The jury verdict "is an industry issue now," not just a Chesapeake Energy problem, Rotruck said earlier this month. "We're all in the same situation. We need legislation that creates a level of confidence so the industry will keep investing."
Last week the state's oil and gas industry had a bill introduced in the state Senate that it said is designed to clarify state laws that govern royalty payments.
Rotruck said following the verdict that Chesapeake had put its plan to build its eastern headquarters in Charleston on hold. Two weeks ago Aubrey McClendon, Chesapeake's chief executive officer, said the verdict has also prompted him to reconsider the company's exploration program in West Virginia.
Lawsuits similar to the case against Chesapeake and NiSource were filed against Dominion Resources and Equitable Resources in Roane County in August. They were moved to U.S. District Court in Charleston because Dominion and Equitable have headquarters outside of the state and federal law therefore applies.
The complaint against Dominion alleges that the company "intentionally failed and refused to pay royalties to plaintiffs at a rate calculated on the fair value of the natural gas produced and marketed" from leases.
It also claims Dominion "entered into a scheme and design to intentionally mislead plaintiffs into believing they were being paid all the royalty due them," and charges the company with "fraudulent misconduct."
The plaintiffs ask that the suit be considered a class action. The suit claims that the class "includes hundreds of oil and gas lessors," and says that more than two-thirds are West Virginia citizens.
The plaintiffs request unspecified compensatory and punitive damages, plus attorney fees and interest.
Dominion spokesman Bob Fulton said, "It would not be appropriate to discuss the case or the merits of the case at this point."
The case is currently in discovery before Judge Joseph Goodwin, who has set an Oct. 28, 2008, trial date.
Pat Kornick, an Equitable Resources spokeswoman, said "Equitable has serious concerns about West Virginia's business future if the verdict in the Tawney case stands.
"We believe the Tawney verdict, as is, undermines efforts made to establish a business-friendly West Virginia and certainly will have a chilling effect on investment in the state," Kornick said. "In 2006 alone, Equitable invested $104 million in West Virginia."
Chesapeake, Dominion and Equitable are the largest natural gas exploration and production companies in West Virginia.
Chesapeake is the third largest independent producer of natural gas in the United States and the largest leasehold owner in the Appalachian Basin, with 3.5 million acres.
The company entered the basin in 2005 when it bought Columbia Natural Resources for $2.2 billion from Triana Energy Holdings. Chesapeake has about 400 employees in the basin, including about 300 in the Charleston area.
Dominion Exploration and Production Inc. is the oil and natural gas exploration and production unit of Dominion Resources. Dominion Exploration has 70 employees in West Virginia, said Ben Hardesty, vice president and general manager of the company's Northeast Gas Basins.
Hardesty said Dominion Exploration drilled 190 wells in West Virginia last year and plans to drill more than 200 this year. The company has active operations in 10 counties in southern and north-central West Virginia. Hardesty is headquartered at Jane Lew in Lewis County.
Kornick said Equitable is the largest natural gas producer in the Appalachian basin. Equitable Supply is the company's exploration and production subsidiary. Its main office is in Charleston.
"We've been part of the West Virginia community for more than 50 years and employ approximately 400 people through our operations in West Virginia," Kornick said.
Masters said, "There are various cases filed, not only here but around the country." He said a case against Eastern American, which he is not involved in, is pending in Barbour County.
"This is not the only state where this issue has come up," Masters said. "There have been some filed in other states -- some filed by the U.S. government and state governments -- against various companies over not paying appropriate royalties."
Contact writer George Hohmann at 348-4836.
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