Suit alleges Alta Mesa underpays gas royalties

Alta Mesa

By Rob Ruth – The Argus Observer – – PAYETTE COUNTY — A class action suit filed in Payette County challenges gas producer Alta Mesa’s methods for figuring royalty payments.

The lawsuit, brought by nine local people who leased their mineral rights to Alta Mesa, alleges “willful underpayment or non-payment of royalties on natural gas and/or constituents of the gas stream produced from wells in Idaho.” It was filed March 1 in Third District Court in Payette.

The complaint further alleges that defendants “manipulated royalty accounting methods by calculating royalty on a net price rather than a gross price, by taking midstream deductions from royalty that the oil and gas leases do not expressly authorize, by failing to account for and pay royalties on all products produced, used, or sold, and by engaging in transactions with affiliates which reduced royalty paid…”

Listed as plaintiffs are Thomas G. Roland, Marcia R. Roland, Randall C. Kauffman, Thana M. Kauffman, Brett L. Moore, Kathleen A. Moore, Richard Peterson, Gregory Semon, and Terri Semon.

Defendants named include Alta Mesa Resources Inc., Alta Mesa Services LP, Alta Mesa Holdings LP, AM Idaho LLC, High Mesa Holdings LP, High Mesa Services LLC, and Northwest Gas Processing LLC.

Plaintiffs are represented by Boise attorneys Vaughn Fisher and Jeremiah Hudson, Reagan E. Bradford of Oklahoma City, Oklahoma, and Rex A. Sharp of Prairie Village, Kansas.

One objective of the complaint is to settle the question of who should bear the “midstream service expenses incurred to make marketable products from the gas produced from the wells.” The complaint notes that “the majority of gas-producing jurisdictions” require lessees (producers such as Alta Mesa) “to bear all of the costs of preparing gas for market. … The issue has not been decided under Idaho law. This case provides that opportunity.”

In all, the nine plaintiffs have six leases to Alta Mesa. According to the complaint, five of the leases provide royalties of 3/16 of gross proceeds from the gas sold, and one lease provides royalties of 1/6. In all of the leases, the calculation is to be made based on the “actual amount received” by the lessee.

“None of these leases expressly permit the deduction of any amounts from the ‘gross proceeds’ or the ‘actual amount received by the Lessee’ for products manufactured from the gas produced from Plaintiffs’ wells,” the complaint states.

According to the complaint, the action is brought on behalf of the class of all “persons who are or were royalty owners in Idaho wells where Defendants [various Alta Mesa entities and others] are or were the operator … from January 1, 2014 to the date Class notice is given. … The Class claims relate to royalty payments for gas and its constituents (such as residue gas, natural gas liquids, or drip condensate).”

Nearly coinciding with the action’s filing in the state court system was the apparent conclusion to a legal back-and-forth that had been playing out for longer than half a year in federal court in Boise. There, U.S. District Judge B. Lynn Winmill had ruled in August that the Idaho Department of Lands’ procedure for forcing mineral rights from unconsenting owners into pools for extraction violated due process. After Winmill reaffirmed the ruling on Feb. 1, the state faced a deadline early in March to formally appeal.

Shelley Brock, a board member of Citizens Allied for Integrity and Accountability (CAIA), an Eagle-based group which had joined in the suit challenging the forced pooling methods, noted Monday that the state had opted not to contest Winmill’s ruling.

“The state had until March fourth to appeal, and they did not appeal,” Brock said.

Idaho Department of Lands hasn’t announced next steps to address the due process shortcoming in light of the decision not to push on against the court case.

“We assume this means there will have to be a whole new hearing process held for the forced-pooled people,” Brock said.

Unlike the CAIA-led suit against Idaho gas and oil regulators, the class action complaint filed March 1 in Payette County was brought by lessors who signed agreements to lease their mineral rights. The complaint seeks to end Alta Mesa’s alleged practice of deducting a portion of the producer’s midstream expenses from the lessors’ royalty checks. It also points to a requirement under the Idaho Oil and Gas Conservation Act that interest of 12 percent be added to royalty payments not paid within 60 days of their due date.

“The damages in this case will be significant,” the complaint states.

The newspaper has reached out to Alta Mesa for comment on the class action.

Rob Ruth – The Argus Observer

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