Class Action Suit Against Exxon

Class Action Suit Against Exxon Subsidiary Alleges Gas Royalty Rip-Offs

Angela Neville, Texas Lawyer

A group of natural gas royalty owners in Western Pennsylvania are fighting mad and accusing Texas-based XTO Energy, Exxon Mobil Corporation’s subsidiary, of messing around with their royalty payments. The group recently filed a class action lawsuit against XTO Energy alleging royalty skimming and seeking reimbursement for royalties they claim were incorrectly withheld because of XTO Energy’s improper deductions of postproduction expenses.

David A. Borkovic, who is of counsel with the Pittsburgh-based office of Jones, Gregg, Creehan & Gerace, is representing the plaintiffs in the class action. The case, Marburger v. XTO Energy, was filed in the U.S. District Court for the Western District of Pennsylvania.

In the class action complaint, the plaintiffs discuss the background concerning the oil and gas leases now held by XTO Energy. Originally, Phillips Production Company and its affiliates drafted and prepared a standard-form oil and gas lease that they used to acquire oil and gas rights in Western Pennsylvania. Under the terms of their standard form lease, royalties were to be calculated without deducting any postproduction expenses.

According to the complaint, Phillips Production “understood the lease,” and paid royalties to landowners without deducting postproduction expenses. In 2011, however, Exxon Mobil acquired Phillips Production and its affiliates, and the standard-form Western Pennsylvania leases were assigned to or placed under the control of XTO Energy. The plaintiffs assert that XTO Energy then disregarded both the language of the leases and the Phillips companies’ understanding and course of dealing. And, in breach of the oil and gas leases, XTO Energy began to deduct various expenses in calculating and paying royalties.

According to Borkovic, XTO Energy has not yet retained counsel for this matter.

“The leases at issue require XTO to pay royalties based upon the total proceeds XTO receives for the gas,” Borkovic said. “XTO, however, is deducting supposed expenses from the proceeds before it calculates the royalties, causing the royalties to be significantly reduced.”

Borkovic explained that the plaintiffs are seeking the following: (i) to recover the difference between the royalties they received and the amount of the royalties if they had been calculated on the total proceeds XTO realized; and (ii) to obtain an order declaring that expenses may not be deducted in the royalty calculation.

According to Borkovic, the plaintiffs do not yet know the number of individual plaintiffs who would be in the class; that information will be obtained from the defendant’s records in discovery.

“Without discovery, we are already aware that there are more than 100 such individuals,” said Borkovic. “We cannot even estimate the amount of total compensation plaintiffs will seek without knowing the extent of the class,” he said. “The value of the class claims, however, will easily exceed $5 million—the minimum for CAFA [Class Action Fairness Act of 2005] jurisdiction.”

Suann Lundsberg Guthrie, XTO Energy’s media adviser for public and government affairs, in the company’s Fort Worth office, did not return a call seeking comment.

Borkovic discussed the future timeline of the case. He said, “The magistrate to whom the case was assigned normally holds an initial management conference within two weeks after a defendant files an answer or a responsive motion.”

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