SALEM, Ohio — Chesapeake Energy has agreed to settle a class action lawsuit alleging the company underpaid gas royalties to leaseholders.
Chesapeake Energy has agreed to pay $7.5 million settle a lawsuit filed by 14 plaintiffs from Susquehanna, Northampton, Lehigh, Lancaster and Montgomery counties in Pennsylvania and Cortland County in New York. The lawsuit will impact several thousand landowners, most of which are in northeastern Pennsylvania, although some are located in western Pennsylvania.
Settlement
Attorney Michelle O’Brien of the O’Brien Law Group, of Moosic, Pa., said the settlement reached Aug. 30 will benefit several thousand leaseholders who alleged they were wrongly charged fees related to process used to refine and transport natural gas extracted from the Marcellus shale.
O’Brien, acting as lead counsel, worked with several other law firms in the eastern United States to negotiate the settlement. She said they have been working on the case for two years.
Market enhance clause
She said the landowners’ leases held a “market enhance clause,” which enabled the gas company to take deductions for processing the gas. The clause allowed the gas company to deduct any costs incurred to the company after the gas entered a marketable state, which meant when the gas was able to enter a pipeline.
Expenses deducted
Some gas leases allow companies to deduct expenses the companies incur while moving gas from the well to the market. These costs include compressor stations and the pipelines.
O’Brien said the issue came to light when landowners asked for guidance because they believed they weren’t suppose to have deductions taken out of their royalty checks and yet large amounts were missing from the checks.
O’Brien said the court still has to approve the case as a class lawsuit and then approve the settlement terms. She said the money will not be split evenly, but will instead depend on the amount of deductions each leaseholder has incurred. The amount each landowner will receive depends on how much money they had taken out of their royalty checks.
Chesapeake comment
Chesapeake Appalachia, the division of Chesapeake Energy drilling the Marcellus shale, was contacted for comment, but declined to be interviewed, providing this emailed statement instead:
“Chesapeake is pleased to have reached a fair and reasonable agreement with Demchak Partners Limited Partnership and we are hopeful the court will approve the resolution of this dispute,” said Jim Gipson, spokesperson for Chesapeake Appalachia.
Advice
O’Brien has some advice for those in the Utica shale: Find an experienced oil and gas attorney to negotiate your lease, and if you’ve already entered a lease, know exactly what to expect in a royalty check.
She encourages landowners to question whether the deductions are what they should be from the beginning. Don’t wait for an explanation, get one right way.
“Know what they (driller) are going to pay and what you will have to hold the burden of paying,” said O’Brien.
O’Brien said it is important for landowner to note if they have a market enhance clause, and keep on the lookout for post production costs on the royalty check stub.
That is such a big amount. That is the problem of some companies. They don’t pay off their end leading to bigger problems in the future. If only they paid every year then the amount wouldn’t have reached that big.