Barnett Shale

Johnson County sues Chesapeake over royalty payments

Johnson County became the latest public entity to sue Chesapeake Energy for allegedly cheating it out of royalties on natural gas pumped from leases on county-owned property.
Johnson County became the latest public entity to sue Chesapeake Energy for allegedly cheating it out of royalties on natural gas pumped from leases on county-owned property. Star-Telegram archives

Johnson County became the latest public entity to sue Chesapeake Energy, saying it was cheated out of royalties on natural gas pumped from county-owned property.

Also named in the lawsuit is Aubrey McClendon, the company’s former chief executive officer, and Total E&P USA, the French energy giant that bought a 25 percent share in Chesapeake’s Barnett Shale holdings in 2010.

Dan McDonald, a Fort Worth attorney representing individual royalty owners against Chesapeake, filed the suit late Monday in Johnson County civil court. The suit does not mention a dollar amount in losses, but McDonald said it exceeds $50 million.

“Chesapeake has substantially overcharged for postproduction expenses and made billions of dollars by hedging gas on the market and not paying the royalty on it,” McDonald said.

While the firm is still calculating the exact acreage involved, the Chesapeake leases include parkland, rodeo grounds and airport property, as well as county roads and land that has come under its control from eminent domain and other legal actions, according to McDonald and court documents.

Gordon Pennoyer, a spokesman for Chesapeake in Oklahoma City, said, “We disagree with Mr. McDonald’s allegations and will address them in the appropriate forum.”

Jeff King, the Fort Worth attorney for Total, said he was unaware of the lawsuit and couldn’t comment.

In the lawsuit, McDonald makes claims similar to those raised by other public entities and private individuals — that Chesapeake underpays royalties by basing them on “affiliate self-dealing and sham transactions.”

Johnson County contends in its lawsuit that the deductions were “excessive, unreasonable and unconscionable” and that the amounts were neither “usual nor customary” at the time.

Chesapeake has argued that the procedures it uses to drill, market and sell the gas are acceptable and follow the letter of the law and the leases.

The city of Fort Worth and the Fort Worth school district, along with Dallas/Fort Worth Airport and the city and school district in Arlington, have sued Chesapeake over royalties.

Last year, Arlington and the city’s school district settled with Chesapeake. The city received $700,000 and the district $987,500. Chesapeake settled with DFW Airport in 2012 for $5 million.

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

Max B. Baker, 817-390-7714

Twitter: @MaxBBaker

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