Ed Bass, other plaintiffs, sue Chesapeake over royalty payments

Posted Thursday, Mar. 14, 2013  comments  Print Reprints
A

Have more to add? News tip? Tell us

Fort Worth investor Ed Bass and more than a dozen other landowners in far south Tarrant County have sued Oklahoma City-based Chesapeake Operating and Chesapeake Exploration in federal court in Dallas, accusing the energy company of cheating them out of potentially millions of dollars in royalties.

The plaintiffs own 3,952 acres which include Trinity Valley School, which sits on 74 acres, and the 660-acre Rall Ranch. The property, including Bass's Winscott Ranch, is located at the Tarrant and Johnson county line, south of Benbrook Lake. They leased their mineral rights to Chesapeake and gave the company rights to drill on their land for a share of the money made off those wells, according to the suit, which was filed today.

But Chesapeake allegedly underpaid those royalties, improperly passed along production costs and made up "sham transactions" with two affiliate companies for the sale of gas at the wellhead to set the price on which royalties were paid, breaching the terms of the lease, the lawsuit contends.

Daniel Charest, a Dallas lawyer representing the plaintiffs, said the property owners "have a number" they feel they are owed, which he described as "millions." The leases have been in place since about 2005, but production began much later, he said.

"We have a contract case," Charest said. "We just want our rights under the contract."

Julie Wilson, Chesapeake's vice president for urban development in Fort Worth, which handles its Barnett Shale operations, declined to comment on the lawsuit.

Under lease terms, Chesapeake was not allowed to pass along "any part of the costs or expenses" of gathering the gas, transportation, production, or other manufacturing or processing costs, the suit says.

Furthermore, Chesapeake "did not actually incur" any post-production expenses, yet it passed 75 cents per Mcf in costs along to the lease holders. Chesapeake was to collect the gas "free of all costs" to the lease holders, the suit says.

Chesapeake has paid the landowners "less than the lessor's full royalty share," which was 25 percent on the minerals, the suit says.

With regard to the wellheads, Chesapeake was selling gas to Chesapeake affiliates Chesapeake Energy Marketing Inc., which sells the gas to third parties, and Chesapeake Midstream Partners, which provides gas-gathering services, as a way to "suppress" prices on which it pays royalties and still passed along production costs to the lease holders, the suit says.

"Chesapeake's payment of royalties and overrides on the basis of this artificial market value measurement breaches the relevant leases and assignments," the suit says.

In September, Chesapeake agreed to pay Dallas/Fort Worth Airport $5 million to settle a lawsuit over how gas royalties were calculated. The airport board sued Chesapeake saying it had been shortchanged on royalty payments from wells drilled on DFW property for about four years.

Sandra Baker, (817) 390-7727

Twitter: @SandraBakerFWST

Looking for comments?

We welcome your comments on this story, but please be civil. Do not use profanity, hate speech, threats, personal abuse, images, internet links or any device to draw undue attention. Our policy requires those wishing to post here to use their real identity.

Our commenting policy | Facebook commenting FAQ | Why Facebook?