Chesapeake sued again over Barnett royalty payments

Posted Monday, Aug. 19, 2013  comments  Print Reprints

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Several Fort Worth landowners including investor and lawyer Elton Hyder have become the latest to sue Chesapeake Energy over what they say is the improper payment of natural gas royalties.

In a lawsuit filed Friday in state District Court in Fort Worth, the plaintiffs say Chesapeake Operating and Chesapeake Exploration deducted costs in violation of their lease terms, used sham transactions to lower the reported price on natural gas production and failed to pay royalties on natural gas liquids produced from several leases. Also named is Total E&P USA, a French energy giant that acquired 25 percent of Chesapeake’s holdings in the Barnett Shale in 2010.

Parties to the suit include William Wright Jr. and William Wright III, Edward and Lynn Sankary, and Sheldon Anisman.

A Chesapeake spokesman at its Oklahoma City headquarters said Monday that the company will not comment on the case. Total E&P representatives were not immediately available for comment.

“Both Chesapeake and Total employ a royalty-accounting system and gas-marketing arrangement that negatively impacts royalties,” the suit alleges. Specifically, the suit claims that Chesapeake sells to affiliates to produce a lower price on which it pays royalties, and then “used device and sham transactions” with its affiliates to impose post-production costs, such as pipeline gathering and compression expenses.

Further, the suit claims that Chesapeake didn’t pay royalties at all on natural gas liquids produced from some leases.

Natural gas liquids, which are separated from produced natural gas at treating facilities, command a higher price per Btu than dry natural gas. They can significantly boost the value of the so-called wet gas that contains the liquids.

The suit doesn’t list a dollar amount for damages, and James Holmes, the Dallas attorney who filed the suit, could not be reached for comment.

Most of the allegations against Chesapeake mirror those of earlier cases, including a federal lawsuit filed in March by large Tarrant County landowners that include Ed Bass and Trinity Valley School. That case is still active, according to federal court records.

And on Aug. 6, the city of Arlington sued Chesapeake alleging improper cost deductions. The city also called the deductions “excessive and unreasonable” and said it sought more than $1 million in damages.

Similar claims over royalty payments have also been lodged against Chesapeake and its affiliates in courts in Louisiana, Pennsylvania, Oklahoma, Arkansas, Kansas and Ohio, according to news reports.

Jim Fuquay, 817-390-7552 Twitter: @jimfuquay

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