PITTSBURGH — A federal judge recently ruled a lawsuit filed by two Butler County landowners against XTO Energy can continue, a decision their attorney called a “great omen.”

On July 14, the Thiele family and Richard Marburger as a trustee of the Olive M. Marburger living trust, both Butler County landowners, filed a suit claiming insufficient natural gas royalty payments.

They claim XTO Energy has committed a breach of contract by deducting operating expenses from royalty payments to landowners, leaving them with less than the one-eighth of the proceeds they were promised in the leases.

XTO filed a motion to dismiss the suit Sept. 21, claiming their method of calculating royalties, called the “net-back method,” is allowed by precedent set in the lawsuit “Kilmer v. Elexco Land Services,” decided by the Pennsylvania Supreme Court in 2010.

A report filed Jan. 26 by U.S. Magistrate Judge Cynthia Reed Eddy denied the motion to dismiss.

Eddy wrote the “Kilmer” ruling did not apply in this case because this case involves a breach of contract.

The definition of the term “royalty” in the Kilmer ruling was made in the context of state law and does not necessarily apply to these (current) leases, she wrote.

Though the suit has yet to be decided, this decision could have implications for the gas industry, said attorney David Borkovic of Pittsburgh-based Jones, Gregg Creehan and Gerace, who represents the plaintiffs.

“What is significant about this is that XTO, and perhaps others in the industry, thought the Pennsylvania Supreme Court ruling from a couple years ago gave them a green light to charge expenses, and actually, what this case shows now is you have to read the lease,” he said.

“It’s a great omen. It’s good for landowners.”

XTO’s lawyers did not file objections to the ruling.

They will soon file an answer to the original complaint to move forward with the case, said Suann Guthrie, XTO media adviser, in an e-mail.

“Our relationship with companies and individuals who share ownership in oil and gas royalties is extremely important to us. We are committed to properly paying our royalty owners under the terms of their leases and applicable state law and regulations,” Guthrie said.

After a response is filed, the two sides will meet with a judge and establish a timeline for the discovery process.

A judge also must rule whether it will continue as a class-action suit or not, Borkovic said.

The complaint says there are potentially more than 100 plaintiffs in the same situation and more than $5 million in the controversy.

The Marburgers own 97.7 acres in Forward Township and the Thieles own 148 acres in Jefferson Township. They leased their mineral rights to Phillips Production in 2007, though that company was acquired by Exxon Mobil in 2011 and local drilling operations were taken over by XTO, which is based in Delaware and Texas.