Ohio Judge Says Chesapeake Acted Legally with Scheme to Lower Royalty Payments

From Law360:

Chesapeake Exploration LLC properly calculated and paid oil and gas royalties to landowners, an Ohio federal judge ruled Monday, granting summary judgment in favor of the oil company in a certified class action that’s dragged on for nearly four years. 

Dale H. Henceroth, Marilyn S. Wendt and eight other landowners filed suit in 2015, alleging the Chesapeake Energy Corp. unit had breached its contracts with them by underpaying them on royalties. Specifically, the landowners said Chesapeake should be paying them royalties based on a higher price associated with the later-enhanced and more expensive gas further down the line. 

But U.S. District Judge Benita Y. Pearson on Monday found that Chesapeake was paying landowners “exactly what the parties negotiated for” in their leases. She granted the company’s motion for summary judgment and denied a competing motion for summary judgment from the plaintiffs. 

“The lease language is plain and unambiguous and the evidentiary record is clear: Chesapeake paid plaintiffs 1/8th of the proceeds it received from the sale of the oil and gas produced and marketed from the leaseholds,” Pearson said.

The landowners' suit is based on the fact that Chesapeake sold the gas to itself (through an affiliate company) at a deflated price, which is the price they paid out royalties on, and then resold the gas at higher prices.  But the leases that Chesapeake drew up were no doubt carefully prepared to allow them to do this, meaning the landowners are unlikely to win the legal battle (although the ruling has been appealed).  Just a note to any landowner out there who is considering signing a lease of any kind: get an attorney to help protect you from predatory practices like this.

Read the rest of the Law360 article by clicking here.