Barnett Shale

Tarrant County College sues Chesapeake over royalty payments

Tarrant County College joined other public entities in suing Chesapeake Energy, saying it was cheated out of royalties on natural gas pumped from beneath its Northeast and South campuses.

In a lawsuit filed in Tarrant County court Friday, the college accuses the Oklahoma City-based energy company of undercutting its payments to the institution by improperly deducting post-production costs and failing to properly market the gas on the open market.

Chesapeake is also accused of trespassing on the Northeast Campus when it included a small sliver of college property in a drilling pool that includes mostly other leases nearby and then placed the drilling rig on the land without its permission.

The lawsuit also names Total E&P USA, the American division of the French energy giant that bought a 25 percent stake in Chesapeake’s Barnett Shale holdings in 2010.

The college is seeking up to $1 million in damages as well as temporary and permanent injunctions to stop Chesapeake from using the disputed pad site.

The city of Fort Worth and the Fort Worth school district, along with the city and school district in Arlington and Dallas/Fort Worth Airport all have sued Chesapeake over how it has calculated royalty payments based on leases that they contended did not allow for post-production costs.

Earlier this year, the Arlington and the city’s school district settled their lawsuits with Chesapeake. The city received $700,000, while the school district got $987,500. Chesapeake reached an out-of-court settlement with DFW Airport in 2012 for $5 million.

The lawsuits filed by the city of Fort Worth and the Fort Worth school district are pending.

“These are very similar claims and leases” to those in Arlington, said Tim Howell, one of the attorneys representing the college. “We have met with Chesapeake and we still remain hopeful that these disputes can be resolved without a trial.”

Lindsay McIntyre, a spokeswoman for Chesapeake, declined to comment on the lawsuit. Attempts to contact the attorney representing Total were unsuccessful.

The colleges’ leases involve gas pumped from beneath the 159-acre South Campus and the 188-acre Northeast Campus. Its lawsuit makes claims repeated in other litigation against Chesapeake — that the company underpays royalties by basing them on proceeds from sales to affiliates or other “sham transactions” and after production costs had been taken out.

The college said its lease agreements establish that their payments should be “entirely free of costs” such as transportation and production costs. But Chesapeake has engaged “in a scheme of affiliated transactions aimed at hiding or embedding impermissible cost deductions and suppressing the royalties it pays’” to the college, the lawsuit states.

Chesapeake has argued in its other legal disputes that the procedures it uses to drill, market and sell the gas are acceptable and that it pays what is known as the “weighted average sales price” it gets from an unaffiliated third party less the actual post-production costs incurred in moving the gas.

The one new wrinkle in the TCC case is the trespass claim on the Northeast Campus. In its lawsuit, the college states its lease prohibits its property from being in a pool in which it has less than 50 percent interest. The campus has less than one acre involved in a 225-acre pool, documents state.

Chesapeake also didn’t get permission from TCC as required, the lawsuit said.

“Absent a surface owner’s permission, the surface of one tract of land generally may not be used to support or benefit mineral production from other lands” Howell said.

Staff writer Shirley Jinkins contributed to this report.