A Dallas U.S. District Judge has granted class action certification to a lawsuit brought by four owners of Denton County, Texas, natural gas leases against Oklahoma City-based Devon Energy that claim Devon underpaid royalties on thousands of North Texas gas leases.
The class action suit alleges that Devon used sham transactions to avoid paying millions of dollars in royalties to property owners from natural gas that was processed through a Bridgeport, Texas, facility.
The suit alleges that Devon sold the natural gas from the landowners’ leases to an affiliate at a low wellhead price. The affiliate — Devon Gas Services — then allegedly processed the gas through the Bridgeport plant and deducted a 17.5% processing fee from royalty checks — a fee that the landowners said was “unreasonable and lucrative.” The suit claims that Devon and its affiliates then sold the residue gas to third parties for a profit that was not passed along to royalty owners.
The suit, which was filed in 2014, involves the sale of natural gas from January 1, 2008 to February 28, 2014.
U.S. District Judge Ed Kinkeade denied class action certification in 2015 but reversed his ruling based on additional evidence. In his latest decision, Kinkeade limited the class to landowners using one of nine standard release forms, saying that the plaintiffs had provided sufficient evidence to certify a class and to support allegations that Devon “failed to diligently market the gas and obtain a reasonable price” for the class.
This suit is similar to one filed against Chesapeake Energy in Texas that alleged it sold natural gas to an affiliate and pocketed the profits when the gas was sold on the open market. That dispute was settled last year after Chesapeake agreed to pay a $51 million settlement.
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