Replies to This Discussion

Permalink Reply by William on September 3, 2010 at 0:17

Henry,



OK. Then get someone to have the guts to write a letter to the president of Chesapeake, with copies to the Shreveport Times and the Mansfield Enterprise. Maybe also to a couple of well-known Shreveport TV reporters. If those who have leased to Chesapeake won’t do it, have someone who has leased to another company send the letter in a public-spirited vein. Lay out the indications that something may be wrong. Ask for an explanation. Reveal the existence of the online site. Giving two or more media outlets this lead should get journalists’ competitive juices flowing and result in Chesapeake’s having to respond publicly. News media know how to run with a story without getting pinned with libel. Sunshine is a good disinfectant.

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Permalink Reply by Henry on September 3, 2010 at 0:30

William,

All I ask for is time. Yes, it may come to having to do what you suggested. However, I would like to have more data to build a stronger case. Reports from 20 landowners are not as compelling as reports from 100 landowners. Also, I would like to give Chesapeake every opportunity to respond here. They have employees, who read this site, who are more than happy to jump into discussions when it is a situation that is favorable for Chesapeake. So far, they have chosen not to participate in this discussion. This is an issue that is going to run for years, and I would prefer a more solid case, before I raise the issue outside of this site.

So in the near term, the best thing you can do for me is go find your friends, neighbors, and co-workers, and get their pricing data. Send it to me, and let's build a larger database.

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Permalink Reply by RR on September 3, 2010 at 1:30

I'll be a while receiving royalties, they've just fraced it. I've heard thru the grapevine that CHK sells the gas to La Midstream at a discount and the difference between that and the full price takes care of the "costs" to the mineral owner. They don't itemize the deductions like other companies I've heard. Are these deductions tax deductible if they were actually available on the stub?

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Permalink Reply by Henry on September 3, 2010 at 2:36

RR,
Interesting... But what about the landowners whose leases call for "cost free" royalties? And many landowners have leases that specify what market price must be used if the operator sells to an affiliate (and it isn't the price the affiliate buys it for).

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Permalink Reply by adubu on September 3, 2010 at 3:45

henry-- where your link to the lastest data list you have--thanks for your helpful work on this--

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Permalink Reply by Henry on September 3, 2010 at 6:08

adubu,
The latest link is now always posted in the original posting, at the top of the page.

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Permalink Reply by adubu on September 3, 2010 at 7:10

O--Thx

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Permalink Reply by The_Baron on September 3, 2010 at 3:52

Its really not that difficult to understand. The cost free clause is basicically meaningless when gas is sold to an affiliate at a discount. There are no deductions per-say... just a crappy price.

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Permalink Reply by adubu on September 3, 2010 at 4:32

Baron-- is the affiliate buying the gas at the point it enters the pipeline since affiliate owns the pipeline. Then I guess affiliate then sells it at end delivery point at price paid to operator at "Wellhead" + pipeline cost + profit margin for pipeline vs if operator sold gas at endpoint of delivery then operator would deduct all transportation cost and fee for net price to royalty owner, but if owner had royalty free clause owner would get gross price at delivery point. This is tricky way to screw royalty owner out of his royalty free clause. Even if operator did not sell to affiliate pipeline he comes out ahead by selling to the pipeline owner at point of enter so to escape paying charges for any royalty free leases. Another legal way for operator to screw us.

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Permalink Reply by Les Bamburg on September 4, 2010 at 2:52

Henry, it is more likely any gas sales to an affiliate would be to a gas marketing affiliate rather than a pipeline affiliate. Most pipeline affiliates simply provide a service rather than purchasing the gas (ie KinderHawk).

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Permalink Reply by Henry on September 4, 2010 at 0:31

Baron,

After thinking about this overnight, I'm going to suggest a different interpretation. Consider typical lease-addendum language:

"Royalties shall not be subject to any deduction of post-production costs, including transportation, dehydration, compression, treating and marketing costs."

This obviously will apply to explicit deductions that some operators put on their statements.

You are telling us that CHK is selling the gas cheaply to an affiliate, because the affiliate must then incur the post-production costs. That may be so, but the result is that the lessor is implicitly being subjected to these post-production costs, in the form of a lower sales price. Yet the lease language does not allow for the lessor to be subject to any deductions - it doesn't say explicit or implicit.

Any thoughts?

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Permalink Reply by Les Bamburg on September 4, 2010 at 2:48

Henry, that is reason I believe the only way to determine the situation is to ask the lessee some specific questions:

1) Who is buying the gas (affiliate or non-affiliate)?
2) Where is the gas purchased (at the unit meter or further downstream)?
3) How is the gas purchase price determined (reference to an index or not)?
4) What deductions are applied to the gas purchase price?

The above questions would apply to any lessee as I would want to know how they are calculating my royalty value. If lessee does not provide acceptable information, I would re-submit the questions in writing and ask for a written response (either letters or e-mail). You may want to repeat this exercise a few times to have a well documented paper trail of the lessee's lack of adequate explanation.

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