Johnson County Landowners Accuse Chesapeake Energy of Skimming Shale Gas Royalties

Categories: Biz, Legal Battles

Aubrey_McClendon.jpg
SourceWatch
Chesapeake Energy Chief Executive Officer Aubrey McClendon
A family of Johnson County landowners is suing Chesapeake, the country's second-largest natural gas company, for allegedly cheating them out of royalties. Their lawyer, Dallas-based attorney James Holmes, says they can thank endlessly indulgent Texas laws and a taxing authority more inclined to look the other way.

The complaint filed Tuesday in federal court accuses Chesapeake of using its gas-gathering and purchasing subsidiaries to "suppress the wellhead gas prices on which it pays royalties" to "imbed" post-production costs -- something the landowners say their lease agreement forbids. Under the contract, Holmes says, Chesapeake is required to pay royalties based on the market value of the gas. Instead, he alleges, the company deducted costs for things like gas compression.

In other states, Holmes adds, Chesapeake would have to fear the prospect of a class-action lawsuit brought by aggrieved landowners for royalty underpayment. Not so in Texas. The Texas Supreme Court has for years been unwilling to certify royalty owner class actions. In fact, they've been downright hostile to anyone claiming an oil or gas company shorted them. When a Dallas man sued Shell because he found out through the Texas Land Commission that he wasn't getting his fair share of royalties on gas beneath his land, the Texas Supreme Court tossed his case, basically telling him that he should have figured out Shell was screwing him sooner.

What's more, Holmes says, the Texas comptroller won't pursue the lost tax revenue. Ever since the price of natural gas tanked, Chesapeake has been navigating choppy waters, offloading billions in assets. Last month, it put its Fort Worth headquarters on the market. To add to its financial stresses, the company has been the target of a series of Reuters investigative reports, beginning with the discovery of Chesapeake Chief Executive Officer Aubrey McClendon's $200 million hedge fund, which bet on the very commodity Chesapeake produces. McClendon was subsequently removed as chairman of the Chesapeake board. Most recently it was in the news for allegedly colluding with a rival natural gas producer to suppress land prices at an auction in Michigan.

"Chesapeake, I suspect, is doing this because it's a debt-laden company and it's gotten itself largely steered by CEO Aubrey McClendon into a tight financial spot, and their in-house lawyers say, 'Hey, in Texas they can't get you with class actions, so let's squeeze royalty owners by paying a quarter or a fifth of the market value of the hydrocarbon production -- while we're at it, we can minimize our severance taxes and some ad valorem taxes as well," Holmes says.

Julie Wilson, the company's vice president for urban development in the Barnett Shale, said she had not seen the suit.

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16 comments
debbieholden23
debbieholden23

we've been going thru this paperwork playground since 09....we've received $25 since we started! If there really is a Johnson County lawsuit we want in!  tired of the BS....

linda_arnold38
linda_arnold38

I am a Johnson County Royalty owner..looking for a lawyer and class action lawsuit against Chesapeake Energy for not paying correct royalties..Surely if we stand together we can do something about our royalties paying all Chesapeake's expense ...I am 67 years old and so tired of being done wrong..My land was my retirement...now with pipe line crossing selling is not happening ..my first year I thought Chesapeake Royalties would be my savior but then they started taking back by deducting everything other than their boots and that will come soon..I went from $1000.00 a month to $50.00 this month..Still pumping..not paying owners..Someone tell me how to get help for me and everyone else..


barbaramccsmith
barbaramccsmith

We had Chesapeake on our sections in Arkansas and they sold our lease out from under us without telling us. We were told by the new company that they were doing this to us. We had our lease for five years with them and they steadily messed us over. We would love to get a class action suit against them. If enough of us were to petition them maybe we could. I contacted CNN and never got a response from them but if enough of us that they messed over would contact them maybe we could get it in the media. Its election year. Worth a try don't you think? Any comments

Yourtxlady
Yourtxlady

Chesapeake are crooks! My mother gets only $400 per month SSI. Chesapeake drilled a gas well on her neighbor's property. My mom's lease expired before this well was drilled and she never leased to Chesapeake. Her minerals were forced pooled to this well. Mom never accepted anything from this well because it was a scam to begin with. Chesapeake should be shutdown!

Weez
Weez

How can I join this lawsuit?  I've caught them red handed cheating me as well. But I don't get enough to hire a lawyer.  These dirty slimeballs do it just because they can, and they are getting away with it.  They should be thrown in jail and fined millions of dollars for intentionally cheating their royalty owners.  The government's main job is to protect the people, but they're just in the pockets of the rich corporations like Chesapeake.

Hangup
Hangup

My latest check included a wellhead price of 22 CENTS! When I requested that Chesapeake explain themselves they eventually produced a spreadsheet they called a "ROYALTY ACCOUNTING RECONCILIATION" that explains how they arrived at 22 cents. The statement specifies $1.93 gross price. Then came the deductions. They recently started deducting what they call "Affiliate gathering fees". I suspect this is what they pay to someone like "Chesapeake Midstream Partners, LP". So instead of the agreed upon $1.93 i get $0.22 and it appears that there is NOTHING i can do about it. And by the way, when I requested an account reconciliation statement for another month (for comparison purposes) i was told to go pound sand. They only "do" these for the last two months and I can only request one every "6 months to a year". This is their policy, they claim. I will never buy another property operated by Chesapeake.

John Trallo
John Trallo

Not exactly the type of behavior you'd expect from your new 'good neighbor' energy company now, is it? These energy companies can not be trusted. That goes for any politician who blindly supports them... republican or democrat. It's time we accept that and start holding them accountable legally, finacially, and legislatively.   

Timothy R. Ruggiero
Timothy R. Ruggiero

Imagine that; a Liar, Cheat and Thief lying, cheating and thieving. Why is the Dallas Observer asking Paid Liar Julie Wilson anything? Try asking their general counsel, he most certainly has seen the suit. Well, I would think he's seen it, I suppose it might have got lost in the stack of other lawsuits that are piling up. 

Timothy R. Ruggiero
Timothy R. Ruggiero

 Unless your contract states otherwise. These people's contract say CHK cannot do this.

Rixdanger
Rixdanger

I suspect they are doing it because the gas can't be marketed until it has been compressed to the downstream pipelines working pressure. There are a lot of things that have to happen to natural gas before it can be sold. All of them cost money and can be deducted from the sales price before royalty checks are cut. 

Max from the Sandspit
Max from the Sandspit

BFD this craps been going on since Spindletop. If ya wanna look into something, start digging into CNOOC and McClendan, CNOOC is Red China's idea of big oil. The tech transfer is likley stunning.

Mike75201
Mike75201

 With the State government in collusion with Big Energy it becomes incumbent upon local municipalities to write and enforce strict regulations that will make the energy industry think twice before they come calling. If we don't look out for our own interests no one else will. If you can, make sure you come to the Dallas City Council meeting on August 1, 2012 and voice your support for stringent regulations on gas fracking in Dallas.

Oak Cliff Townie
Oak Cliff Townie

Just Another case of RED County and State voters whining Moaning and now Frivolous lawsuit filing when it comes to the  Business friendly government practices they voted for. What DO Business friendly Mean ?

Marianagriggs
Marianagriggs

This is why strict and enforceable municipal ordinances are important- we will not be able to push the industry back once we let them in. Hope city hall is reading this. It would be great if our state and federal laws could protect us, but apparently they will not. Please come to Dallas City Hall on August 1st to hear what the rules might, should and must be for Gas Drilling in our city limits. You think it will be any different when the city doesn't get the royalties promised and tries to sue?

barbaramccsmith
barbaramccsmith

I would love to get into it. I contacted the media and got no response but if enough of us that they are messing or messed over was to contact CNN we might get it in the media after all its election year. We signed with them and have three different companies on our acres. They are all crooks I think.

JackW
JackW

Sorry that you got ripped off so badly. Perhaps some smart lawyers can come up with a way to file a "Federal" class action suit and avoid the hopelessly pro=oil co. Texas courts.  Best of luck and thanks for the info.

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