City of Arlington files Lawsuit against Chesapeake
http://www.star-telegram.com/2013/08/06/5059396/arlington-sues-ches...
ARLINGTON — The city is suing Chesapeake Exploration, saying the company underpaid royalties on natural gas pumped from about 1,908 acres of public land.
The lawsuit, filed Monday in a civil District Court in Tarrant County, alleges that the Oklahoma City-based energy company has deducted post-production costs from the city’s royalty payments that are not only unauthorized under the lease agreements but also appear to be “excessive and unreasonable.”
The company has also failed to reasonably market the produced gases from the leases and obtain the best price possible by selling to subsidiaries or affiliates in violation of the lease agreements, the lawsuit alleges.
Arlington said it has not been able to quantify its monetary damages for the contract breach because Chesapeake has withheld lease documents. But the city said in the suit that it expects to seek monetary relief in excess of $1 million.
Neither Arlington City Attorney Jay Doegey nor Chesapeake spokeswoman Leah King could be reached for comment late Monday.
The city’s lease agreements “prohibit or significantly limit deductions,” such as transportation and production costs and taxes, and “provide for cost-free royalties,” according to the lawsuit.
However, Arlington said it found in a recent audit that Chesapeake appears to be basing its royalty payments to the city on proceeds received from sales to affiliates after production costs have already been taken out.
The suit also alleges that these deductions are not apparent from the information that Chesapeake has provided to the city, saying that those statements “misleadingly reflect” that no deductions are being taken.
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Replies to This Discussion
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Permalink Reply by courtney oliver on -
Same here. They are charging me .46 cents a Mcf for gathering
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Permalink Reply by Grillin' - MmmMmm on
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That's actually not as bad as you think! In some places producing companies are being charged 20% - 30% of all proceeds for gathering and processing. On $3 gas, that's 60 - 90 cents.
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Permalink Reply by Mike Bradstreet on
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These people are not working interest owners, royalty's come off the top, always have I send out hundreds of royalty checks a month, the only deduction is their share of state taxes
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Permalink Reply by Mike Bradstreet on
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Mine too, Cheapsapeak will fold up when they lose the first lawsuit, because may will follow, Nat gas is measured and paid for at the wellhead for royalty owners anything else is fraud
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Permalink Reply by Henry on -
Mike,
Can you tell me where the "wellhead" is? Is it where gas comes out of the ground? Is it the point where gas is sold into some larger pipeline? What is the legal meaning of "wellhead?"
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Permalink Reply by mle on
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Ditto. We have similar lease clauses but their unit payment amount is consistently 50 cents lower than other well operators in the same area and they not showing deductions.
If their lips are moving.....
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Permalink Reply by Susan Dowling Reuterskiold on
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Several years ago my Attorney in Shreveport, LA, negotiated a Lease for myself and five others in connection to inherited minerals (JPD Energy). With the Lease was an Exhibit "A". No. 9. stated royalty interest provided for in lease shall not be charged and shall not bear, any costs whatsoever in connection with production, compression, gathering, and transportation costs. A well was established and I receive a monthly check from Chesapeake and every month they deduct fuel and gathering. I eventually sent them a letter regarding the deductions and a month later they responded, telling me I was wrong. I then turned this over to the Attorney and they told him the same thing. Susan in Brighton, CO
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Permalink Reply by courtney oliver on
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In my reply above. I removed in my lease to delete that charge. and I received my royalty with no gathering charges. I change the name from me to my LLCf and the .46Mcf is now being added;
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Permalink Reply by JHH on
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Susan... did you file legal documents declaring the lease null and void based on the fact the terms were violated? You could file a lien against them and that would cause all kinds of legal and financial troubles for them. Not that i have any experience about this. jhh
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Permalink Reply by Grillin' - MmmMmm on
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Could be they are charging you for "processing" which is different from gathering, compression and transportation. Didn't see it listed in you exclusions. Processing is actually a value adding proposition for you. Without processing you'll lose value.
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Permalink Reply by courtney oliver on
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It is gathering on my checks
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