Replies to This Discussion

Permalink Reply by Ben Elmore on September 6, 2012 at 3:37

One provision you can include is a preclusion against affiliate sales.  You can also provide that royalty shall be paid on the amount realized in the first arm's length, non-afiiliated sale, and to the extent any deductions for post-production costs are factored into the amount realized, such costs shall be added back in before paying royalties.

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Permalink Reply by P.S. Payne on September 5, 2012 at 7:23

So, Ben, you are saying that the "net price" of 84 cents should be acceptable?

They are selling the gas to their own affiliate, CEMI?

Why does Chesapeake calculate their payments using such unorthodoxed methods?

All the other companies seem to use a more straight-forward methods.

I hope that our friends and neighbors are not just depositing their checks without checking them.   

 

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Permalink Reply by Jo Ann Carter on September 5, 2012 at 11:22

I do not know what happened to my question before so here goes. I should be able to deduct deductions from my income tax. I do deduct severance tax. If they do not list your deductions, how are you gonna claim it?

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Permalink Reply by Roy Austin Smith on September 5, 2012 at 11:44

If you are talking about chk, the expense deduction are hidden. It took me about three months to find out they were taking out expenses and finally some one slipped up and send me a copy. chk takes the expenses out of your money before you get it and you get no deductions.

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Permalink Reply by Churn on September 5, 2012 at 12:08

So should be deposit the checks or not?  Once deposited, are we accepting that they are correct and can't be compensated later if we find that we have been duped?

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Permalink Reply by Andrew on September 6, 2012 at 2:50

I believe there are still avenues for recovery for underpayment of royalties in Texas, can anyone more familiar with Texas law shed some light?

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Permalink Reply by Ben Elmore on September 6, 2012 at 3:34

P.S.,

No I am not saying that the net price is acceptable on its face.  Based on prices paid by other operators in every area I have heard of where CHK operates, the other operators pay royalties on higher prices.  The fact that CHK sells to an affiliate is not in and of itself illegal, but if it is shown that such sale results in a lower price, then depending on your lease terms, you could have a claim that they breached the lease by (1) failing to obtain a price commensurate with the market in the field; (2) charging excessive post-production costs; and/or (3) violating cost-free royalty clauses in the lease.  The fact that CHK is routinely paying on lower prices than other operators raises a red flag, especially when coupled with the fact that they sell to their affiliate.  Royalty owners raise questions and get less than clear answers from CHK, but then that is where it ends.  Just because you deposit the royalty check, does not mean you are barred from seeking relief for underpayment, if you have been underpaid.  But if you wait longer than 4 years to pursue a claim in Texas, then you most certainly will be barred, as in Texas you can only pursue underpayment going back four years.

 IMHO, royalty owners should get together on a well-by-well basis and pursue claims together.  In other words, get as many royalty owners in one well/unit together and pursue claims in one suit as a group. The reason being, it certainly can be expensive to pursue litigation, but as a group, the costs are spread across the group pro rata.  Otherwise, your individual potential damages may not be large enough to make it economic to pursue alone.  If you think about it, getting less than $1.00 per Mcf for your gas is probably more expensive in the long term.

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Permalink Reply by adubu on September 6, 2012 at 5:10

Ben-- for those that are interested in contacting all in the unit they can obtain the P-12 list of Royalty owners in the final Unit that is filed for record at County Clerk Office of County well is located in. Also you may find list on drilling permit filed on the RRC web site.

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Permalink Reply by Ben Elmore on September 6, 2012 at 7:32

Can also get the unit designation filed of record in the county where the well is, which will list the leases included in the unit.

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Permalink Reply by adubu on September 7, 2012 at 0:38

Jo Ann-- you only report net paid royalty on income tax so all deductions including severance tax already deducted. You can then deduct the 15% depletion allowance from the net.

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Permalink Reply by P.S. Payne on September 6, 2012 at 9:20

I thank you all for your excellent responses to my e-mail.  I know that I am not the only one who has been disappointed by the actions of Chesapeake.  I hope our discussion has opened the eyes of others who might have the same experience with Chesapeake.  I was hoping that the TRRC might offer an avenue of resolution since our legislative avenues are so costly.

 

Ben, I did review my lease after your e-mail concerning selling to their affiliates.  Fortunately, my attorney

did add an addendum to my lease stating that the gas is to be sold through a "non-affiliated contract".

My interest is so small in this unit, it will not be worth it to pursue them alone.  I do think that I should

call Chesapeake's attention to the matter though.  And, possibly have a  discussion with the TRRC.  Isn't

that what you would do?

 

If I make any progress with Chesapeake, I will post it. 

 

I also want to thank GoHaynesvilleShale for providing this venue for us.    This is a learning

process for most of us.  We need to share our experiences and our ideas.

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Permalink Reply by Ben Elmore on September 6, 2012 at 9:25

The TRRC will not be able to help you in this regard.  They do not police individual lease terms.  Your only recourse is to contact CHK, but they are not goign to change who they sell to simply because of your interest, unless you are a large mineral owner.  But, you can try to get them to offer you something in return for breaching your lease, which they have done assuming they are selling to an affiliate.  You might need an attorney to help you out with that.  But it seems to me they should offer you something.

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