Oil and Gas Attorney Gregory D. Jordan Comments On New Lawsuit Against Chesapeake Energy
Austin, TX (Law Firm Newswire) October 17, 2013 - Chesapeake Energy has been sued again over allegedly improper natural gas royalty payments.
Several Fort Worth investors and landowners filed suit against the company in state District Court in Fort Worth, saying that Chesapeake deducted costs from their royalty payments, in violation of the terms of their leases.
“Chesapeake Energy has faced several lawsuits of this nature,” said Gregory D. Jordan, a prominent oil and gas attorney in Austin. “The complaints arise from alleged deductions from the royalty payments that the company pays to leaseholders. Chesapeake may wish to reconsider the way it is dealing with landowners,” noted Jordan.
The latest lawsuit also alleges that Chesapeake Energy lowered the reported price for natural gas production through the use of sham transactions, and did not pay royalties at all for some natural gas liquids.
The suit also names as a defendant Total E&P USA, a French company that owns 25 percent of Chesapeake's holdings in the Barnett Shale. William Wright Jr., William Wright III, Sheldon Anisman and Edward and Lynn Sankary are parties to the lawsuit.
According to the lawsuit, both companies used a gas-marketing system and royalty-accounting arrangement that led to reduced royalty payments. The complaint alleges that Chesapeake made sales to affiliates to arrive at a lower price from which royalty payments would be calculated, and then used sham transactions with those affiliate companies to impose post-production costs such as compression and pipeline gathering expenses. On some leases, Chesapeake paid no royalties at all for natural gas liquids, according to the suit.
Natural gas liquids can increase the value of so-called wet gas that contains them. The liquids, which are separated from the gas after production, command a higher price per unit of energy than dry natural gas.
The case is the latest in a string of lawsuits against Chesapeake alleging improper royalty payments. A group of Tarrant County landowners sued the company in federal court in March, and the city of Arlington filed a lawsuit against Chesapeake August 6. The city called the deductions in that case “excessive and unreasonable,” and sought over $1 million in damages. Similar cases have been filed against the company in at least six other states, according to news reports.
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