Tarrant Regional Water District Audit Finding: Chesapeake Underpaid Royalties By More Than

Austin Oil and Gas Attorney, Gregory D. Jordan

Austin, TX (Law Firm Newswire) April 23, 2014 – A Texas water district’s audit discovered that an oil company had underpaid royalties to the district.

In 2012, Tarrant Regional Water District hired Martindale Consultants, Inc. to determine whether the district had received all the royalties it was due from mineral leases it had signed with Chesapeake Energy. The istrict paid Martindale $35,118 for the audit, and the company found $1,786,769 in underpayments for a period from January 2008 through October 2011.

Subsequently, Chesapeake paid the full underpayment amount to the water district.

“Oil and natural gas leaseholders should be aware that disputes over royalty payments are not uncommon,” says Austin oil and gas attorney Gregory D. Jordan, who is not involved in the Tarrant water district matter. “Payment disputes often involve the issue of whether post-production costs may be deducted from royalty payments, and some leaseholders have found legal action necessary to obtain full payment.”

The Tarrant Water District unanimously approved a new services agreement with Martindale for the company to conduct new royalty audits of payments made by Chesapeake. The Oklahoma-City-based energy company is currently facing a number of lawsuits over underpayment of royalties. The water district will pay Martindale $135,000 for the new, three-year audit services agreement.

According to Sandy Newby, director of finance for the water district, Martindale also discovered that XTO Energy, a Fort Worth subsidiary of Exxon Mobil, had underpaid royalties to the district by $82,076 for a period from February 2005 through June 2010. XTO paid the full underpayment amount. The district paid Martindale $47,937 for that audit.

The Tarrant Regional Water District operates four reservoirs and is a major supplier of water to North Texas. The district has extensive land holdings on which many oil and natural gas wells have been drilled. Since 2003, the district has collected more than $300 million in royalty payments.

“It is fortunate that the water district had the resources to investigate and pursue underpayments in this case,” indicates Jordan. “Smaller leaseholders also need to be vigilant regarding possible underpayments by
oil and natural gas producers.”