May 16, 2014

Star-Telegram sues Chesapeake over royalty payments

The newspaper is the latest of a growing number of mineral rights owners to accuse the natural gas producer of improperly paying royalties.

The Star-Telegram has sued two Chesapeake Energy units, alleging that the natural gas producer improperly deducted costs from royalties on one lease and failed to pay any royalties on another.

The suit seeks between $200,000 and $1 million in damages.

Chesapeake spokesman Gordon Pennoyer, at the company’s Oklahoma City headquarters, said Chesapeake had no comment. Star-Telegram officials also declined to elaborate on the suit, which was filed in state district court Friday.

The Star-Telegram joins a growing number of royalty owners in the Barnett Shale and other states that have sued Chesapeake over similar issues. On Thursday, the Fort Worth school district filed suit against Chesapeake as well as its former CEO Aubrey McClendon. Last year, Chesapeake paid $7.5 million to settle a class-action lawsuit over royalties in Pennsylvania.

Responding to increased interest in the issue, the McDonald Law Firm in Fort Worth plans a “town hall meeting” at 6:30 p.m. May 27 at Unity Church, 5051 Trail Lake Drive. The meeting is aimed at Chesapeake royalty owners who have concerns about their payments. The firm has created a website called that offers a free analysis of leases by an attorney.

The Star-Telegram suit, filed in Fort Worth, involves two leases signed with Chesapeake, one in Tarrant County in 2007 and one in Johnson County in 2010. The 2007 lease is on the site of the paper’s printing and distribution facility at I-20 and I-35, and the 2010 lease is on an area distribution facility in Burleson.

On the Tarrant County lease, the suit alleges that Chesapeake “impermissibly deducted certain costs and expenses” from royalties and failed to properly pay for the full volumes of gas.

Regarding the Johnson County lease, the suit says Chesapeake began production from wells on a unit that includes the Star-Telegram’s lease as early as March 2011, but the newspaper has never received any royalties. Texas rules require that producers begin royalty payments no later than 90 days after the end of the month that production begins.

The Johnson County lease cited in the Star-Telegram suit, named Old Town, is exceptionally productive, according to Texas Railroad Commission data. One well has produced more than 4 billion cubic feet since March 2011, and three others have each produced more than 500 million cubic feet of natural gas since June 2013, the records show.

In the past year, the cities of Fort Worth and Arlington, the Arlington school district, a group including Fort Worth developer Ed Bass and Trinity Valley School, and another group including a half-dozen prominent Fort Worth residents have filed lawsuits against Chesapeake over royalty payments.

DFW Airport earlier settled a lawsuit.

In March, a state appeals court upheld a Tarrant County court decision that found Chesapeake breached the terms of its lease with Martha Rowan Hyder, who represented the estate of her late husband, Elton M. Hyder Jr., and their children.

The lower court had awarded the Hyders about $700,000 in unpaid royalties, plus interest and attorney’s fees that pushed total damages to nearly $1 million.

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