Royalty Lawsuits Against Chesapeake Consolidated in Texas

Article

More than 400 lawsuits have been consolidated in Texas, where energy drilling giant Chesapeake Operating Inc. is accused of withholding more than $1 billion in royalty payments from about 25,000 property owners.

“The vast majority are just smaller landowners, even some folks who own bigger tracts who really were not familiar with the oil and gas industry,” attorney Dan McDonald whose Fort Worth firm is handling the bulk of the cases, told The Dallas Morning News. “Most of them signed leases presented to them by a (corporate) landman.”

The lawsuits accuse Oklahoma City-based Chesapeake of deliberately cheating them by improperly calculating the price of gas and by wrongly deducting expenses after the gas was transmitted.

“We disagree with Mr. McDonald’s allegations and will address them in the appropriate forum,” said Gordon Pennoyer, director of strategic communications for parent company Chesapeake Energy Corp.

The first of several cases is set to be tried in February by a state district judge in Fort Worth. At least nine others also are set for trial in Tarrant and Johnson counties.

Chesapeake and some Barnett Shale mineral rights owners earlier this month reached an out-of-court settlement over allegations of underpaid oil and gas royalties. The settlement included billionaire investor Edward Bass of Fort Worth. The terms weren’t released.

In court filings, Chesapeake and related companies have described the theories of the plaintiffs as “legally irrelevant.”

Karen Jacobs, of Joshua in Johnson County, south of Fort Worth, says she and her husband didn’t expect to get rich from their one-acre property but the extra cash was welcome. The checks dropped dramatically a few years ago.

“I’m just hoping there will possibly be some back payments, and it will force Chesapeake to pay what is due,” she said.

McDonald contends in the lawsuits that from 2009 to 2013 Chesapeake was in a “desperate struggle for financial survival” because of heavy debt and declining gas prices and sold 25 percent of its Barnett Shale interests in 2009 to the French conglomerate Total.

Then two years later, under what the plaintiffs say was pressure from Total, Chesapeake notified nearly 19,000 royalty owners that their checks might decrease because of a change in calculating post-production costs.

That’s when payments dropped off sharply, according to the lawsuit.

Among the complicated legal maneuvering in the cases, McDonald is seeking approval under international treaties take a deposition in France from a ranking Total official.