Friday, August 31, 2012

Chesapeake Upsetting Landowners By Exploiting Lease Technicalities and Taking Chunks Out of Royalty Payments

From Bloomberg comes a new report on another cost-cutting measure by Chesapeake which has many landowners around the country steaming.
As gas prices were heading toward a 10-year low in April, Chesapeake began reinterpreting in its favor thousands of contracts with landowners from Pennsylvania to Texas that own the 1 trillion cubic feet of gas the company produced last year, according to interviews and documents reviewed by Bloomberg. Chesapeake, arguing that other contract language allows for cost deductions, is fighting more than a dozen lawsuits.
Lawsuits based on this matter have had mixed results.  But whether or not Chesapeake has the legal justification within the leases to defend themselves for their actions, it is certainly a bitter pill to swallow for landowners who negotiated for a no-cost lease only to have the energy company turn around and pass costs on to the landowners anyways when the going got tough.

Further, from the Bloomberg report (emphasis ours):
The costs range from 70 cents to $1 per 1,000 cubic feet of gas produced, Hood told the Fort Worth, Texas, newspaper. Coupled with lower gas prices, the deductions mean some royalty owners have seen their payments slashed by more than 90 percent this year, with Chesapeake paying as little as 11 percent of the price paid by rival energy producers, more than two dozen leaseholders in Texas and Louisiana said in lawsuits and interviews.
Chesapeake has paid royalties in North Texas based on a gas price as low as 11 cents per million cubic feet, eight or nine times less than producers including Devon Energy Corp. (DVN)and EOG Resources Inc. (EOG), Hazlewood, the tax appraiser, and other royalty owners said. 
Read the rest of the article here.

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