Eighth Circuit doubts Arkansas gas producers can keep skimping on royalty payouts

The Eighth Circuit heard arguments over Arkansas Act 1024, a 2025 law barring gas producers from deducting post-production costs like gathering and transportation fees from royalty payments to landowners. Energy companies including Flywheel Energy Production sued, arguing the law unconstitutionally rewrites existing lease contracts, and won a preliminary injunction blocking it last year.

That injunction now looks shaky after the Eighth Circuit's August ruling in Pennington v. BHP Billiton Petroleum, which held such deductions are barred unless a lease explicitly allows them, treating Arkansas's law as a clarification rather than a rewrite of existing contracts. Judges on the panel, while acknowledging the energy companies face real economic injury, indicated they likely have no choice but to vacate the injunction and send the case back for review on separate takings and due process claims.

Company attorney James Rankin argued that lifting the injunction risks premature well closures and permanent losses for operators, and urged the panel to preserve it while those remaining constitutional claims are litigated. The judges made clear they were only weighing the preliminary injunction, not resolving the broader dispute.

The full dispatch is available from the source below.