First Choice Energy

Monday, August 19, 2019

Federal Court Allows Landowners Bilked Out of Royalties to Continue with Lawsuit

From Law360:
The Sixth Circuit affirmed class certification Thursday for landowners claiming Total E&P USA Inc. and Chesapeake Exploration LLC withheld payments from thousands of royalty owners, saying differences among the natural gas and oil wells did not overly complicate the common question of whether the company made improper payment deductions. 
A three-member panel ruled that the question of whether Total and Chesapeake improperly paid royalties after deducting costs associated with processing the gas so it could be sold on the market was common among the landowners. As such, a lower court properly determined that the language of each lease and when the gas could be deemed marketable was a common question at the heart of determining liability, the panel said. 
“The case will turn on whether the lease language is deemed to invoke the at-the-well rule, the marketable-product rule, or a different valuation system entirely. This question will have a common answer that turns on the court’s interpretation of the lease language under Ohio law,” U.S. Circuit Judge Ronald Lee Gilman wrote in the published opinion. 
Chesapeake told the appeals court in January that its practice of calculating royalties known as the “netback” method, which allows gas companies to deduct fees they pay to lessors when a contract sets the value “at the well,” does not violate the leases and that the lessors can’t establish liability without individual inquiries into Chesapeake’s use of the method. An Ohio federal judge recently determined that Ohio law follows the “netback” method.
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