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Landowners approve settlement worth $51 million with Chesapeake Energy

Landowners accepted a $52.5 million settlement with Chesapeake Energy over their missed royalty payments. Lem Miller, right, didn’t accept the deal and is holding out for more.
Landowners accepted a $52.5 million settlement with Chesapeake Energy over their missed royalty payments. Lem Miller, right, didn’t accept the deal and is holding out for more. Star-Telegram archives

Chesapeake Energy will pay about $51 million to wipe out hundreds of lawsuits accusing the Oklahoma City energy giant of cheating North Texas property owners out of millions of dollars in natural gas royalties.

Attorneys at the McDonald Law Firm and Circelli, Walter & Young in Fort Worth announced late Wednesday that 91 percent of their 13,000 clients — representing 97.15 percent of the natural gas production — agreed to accept the out-of-court settlement.

The law firms had a Monday deadline to get at least 90 percent of their plaintiffs, representing 95 percent of the natural gas pumped from May 2011 until February, to agree to the deal. The maximum payout of $52.5 million was prorated down to match the amount of gas production that backed the deal, which was reached in May.

“We are pleased that the required number of plaintiffs … have accepted the terms of the settlement agreement, resolving this matter,” Chesapeake and the law firms said in a joint statement.

We are pleased that the required number of plaintiffs … have accepted the terms of the settlement agreement, resolving this matter,

Joint statement by Chesapeake and the law firms

Chesapeake and Total E&P USA Inc., Chesapeake’s partner in the Barnett Shale, will now deposit $41.3 million in the bank by Monday. Chesapeake is paying $28.5 million in cash along with a $9.7 million promissory note payable in less than three years. Total, which holds a 25 percent interest in Chesapeake’s North Texas leases, is shelling out about $12.8 million.

Individual clients will get payments ranging from several thousand dollars to a few hundred or less.

While attorneys involved in the lawsuit have been reluctant to discuss the settlement, the federal judge who acted as a mediator in May said the out-of-court deal is one he would recommend.

“I am of the opinion that the settlement reached in this case is a reasonable and practical resolution of the legal and factual claims and defenses at issue,” wrote former U.S. District Judge Michael Burrage. “I fully recommend the settlement as reasonable, arm’s length, and accurately reflective of the risks and potential of the claims being settled.”

The lawsuits alleged that Chesapeake deducted higher-than-necessary postproduction costs from royalty checks. They contended that the company used sham sales to affiliates to transport and market the natural gas to increase what it earned.

Chesapeake, for its part, denied doing anything wrong and said everything it did was allowed under terms of its leases. It also argued that it paid a weighted average sales price to landowners and rejected the notion that it was using “fraudulent transactions.”

Many of McDonald’s clients had leases covering small acreage and allowed postproduction costs to be deducted, unlike some of the leases obtained by larger landowners and institutional investors that prohibited postproduction costs. His cases were tougher to litigate.

In April 2015, a state judicial panel granted a request from Chesapeake that the lawsuits be granted what is known as multidistrict litigation status and appointed two judges to hear pretrial motions on such issues as evidence and testimony in an effort to streamline the legal process. State District Judge Dana Womack was appointed to hear cases filed by McDonald.

The attorneys get 39 percent of the $51 million settlement, or about $19.9 million. About $2.1 million is set aside for expenses, including about $1 million for experts. The money will be subtracted from clients’ checks based on their leases’ gas production.

This report includes material from the Star-Telegram archives.

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

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