We have mentioned in the past on the blog how Chesapeake Energy has been drastically reducing royalties paid to leaseholders by deducting huge post-production costs. As ProPublica reporter Abrahm Lustgarten detailed in a 2014 article, Chesapeake formed Access Midstream and then sold it's pipelines to Access for nearly $5 billion. In return, Access was guaranteed to transport the gas Chesapeake extracted at exorbitant rates, the cost of which were then passed on to landowners. As Lustgarten put it:
While the precise details of Access’ pricing remains private, immediately after the transactions Access reported to the SEC that it collected more money to move each unit of gas, while Chesapeake reported that it also paid more to have that gas moved. Access said that gathering fees are its predominant source of income, and that Chesapeake accounts for 84 percent of the company’s business.
What’s more, SEC documents show, Chesapeake retained a stake in the gathering process. While Chesapeake collected fees from landowners like Drake to cover the costs of what it paid Access to move the gas, Access in turn paid Chesapeake for equipment it used to complete that process, circulating at least a portion of the money back to Chesapeake.
ProPublica repeatedly sought comment and explanations from both Chesapeake and Access Midstream over the course of several months. Both companies declined to make executives available to discuss the deals or to respond to written questions submitted by ProPublica.
Days after the last of the deals closed, Drake and other landowners learned the expense of sending their gas through Access’s pipelines would eat up nearly all of the money they had been previously earning from their wells. Some saw their monthly checks fall by as much as 94 percent.
An executive at a rival company who reviewed the deal at ProPublica’s request said it looked like Chesapeake had found a way to make the landowners pay the principal and interest on what amounts to a multi-billion loan to the company from Access Midstream.The state of Pennsylvania is looking at passing a bill which would close the loophole being exploited by Chesapeake (and some other drillers to a lesser extent) and guarantee landowners 12.5% royalties from the gas sold...which happens to be exactly what they were promised by landmen when they signed their leases.
With that bill in mind, Bradford County commissioners hired a public relations firm to create a video highlighting what some of the landowners are dealing with, including the story of an animal sanctuary that not only stopped receiving royalty checks, but received a letter from Chesapeake saying that they owed the company over $30,000.
Here is the video:
The industry, for its part, is going all in to fight the bill. You can read the argument that the American Petroleum Institute sent to the Pennsylvania House of Representatives below:
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