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Chesapeake Energy sued over royalties from Eagle Ford leases

Chesapeake Energy now faces similar accusations of cheating landowners in the Eagle Ford Shale in South Texas out of more than $9.4 million dollars.
Chesapeake Energy now faces similar accusations of cheating landowners in the Eagle Ford Shale in South Texas out of more than $9.4 million dollars. AP archive

Already besieged by lawsuits challenging royalty payments in the Barnett Shale, Chesapeake Energy now faces similar accusations of cheating landowners in the Eagle Ford Shale in South Texas out of more than $9.4 million.

Blackstone Dilworth, his family and related parties filed the lawsuit in McMullen County south of San Antonio last week accusing Chesapeake of breach of contract and other claims involving oil and gas leases covering 15,900 acres and 85 producing wells, according to court documents.

The lawsuit says Chesapeake paid insufficient royalties based on pricing and production volumes while also violating lease terms prohibiting deductions for “producing, gathering, storing, separating, treating” and making the oil and gas “ready for sale or use.”

The Dilworths also argue that Chesapeake did not deposit the full amount of the disputed royalty payments into an escrow account as required if a disagreement ever surfaced. Chesapeake put $1.2 million into the bank last year following a 2014 audit report.

These breaches could allow the Dilworth family to terminate its leases with Chesapeake. The leases are spread over three large ranches in McMullen County: the 8,577-acre Dilworth Ranch; the 5,754-acre Prince Ranch; and the 1,568-acre 76 Ranch.

“When [natural] gas prices went low, lawsuits kicked in and with oil going down you will see more lawsuits from oil-related plays,” said Daniel Charest, the Dallas attorney who filed the suit and also represented Ed Bass and others in a successful lawsuit against Chesapeake over royalty payments in Fort Worth.

Like the plaintiffs in the Bass lawsuit, Charest described the Dilworths as sophisticated oil and gas investors who knew what they were doing. “This is not their first rodeo,” he said.

Gordon Pennoyer, a spokesman for Chesapeake in Oklahoma City, declined to comment.

This is the second lawsuit to be filed recently by the Burns Charest law firm against Chesapeake. Last week the firm filed a class action lawsuit in federal court against Chesapeake over allegations that were the basis for a federal indictment against the company’s late CEO Aubrey McClendon.

In the civil lawsuit, Chesapeake is accused of conspiring with Tom Ward and SandRidge Energy to “suppress and eliminate” competition for leases in northwest Oklahoma from December 2007 to March 2012. By doing so, prices paid to landowners were depressed, court records state.

“I think the indictment came down and it crystallized some of the issues we’d been hearing,” said Warren Burns, Charest’s legal partner. He said what Chesapeake and SandRidge was doing was a common practice in some areas, but that didn’t make it right.

McClendon died the day after being indicted by a federal grand jury. The government has said it will take steps to drop the charges. Chesapeake, which is cooperating in the federal government’s inquiry, does not expect to face prosecution.

Ward is the former CEO of SandRidge and was a co-founder of Chesapeake with McClendon. McClendon is not named in the class action lawsuit filed, but Burns said they have not ruled out including his estate in future filings.

Chesapeake faces hundreds of lawsuits involving thousands of clients for how it allegedly underpaid royalties.

Max B. Baker: 817-390-7714, @MaxbakerBB

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