County royalty owners arm themselves for war

http://m.cleburnetimesreview.com/news/article_0111ca50-2ebe-11e4-b9...

The David and Goliath war by Johnson County land owners against Chesapeake Energy may well have gained a pair of new troops on Tuesday.

Albert and Vertis Gibbs, who are Chesapeake royalty owners, attended a Cleburne Conference Center presentation by the lawyer who is suing Chesapeake on behalf of about 3,000 area royalty owners. 

“The big dogs started something,” Albert Gibbs said. “Now the little guy’s getting involved.”

About 60 lessors were on hand for the latest in the ongoing series of talks, designed to inform them of the issues, by Fort Worth attorney Dan McDonald. 

“They have stolen hundreds of millions of dollars,” from Johnson and Tarrant County royalty owners who leased land to Chesapeake, McDonald said.  “There is only one word to describe what they’ve done: stealing.”

McDonald is enlisting an army of plaintiffs who might not otherwise be able to hire a litigator; their individual claims are relatively small, and their potential judgments insignificant to Chesapeake....

However, a few new details emerged at the local meeting.

McDonald told the Cleburne crowd that District Judge William Bosworth will be handling the cases he’s filing here. 

“They’re all consolidated,” McDonald said. “Judge Bill Bosworth is going to be the Chesapeake judge.”

 Bosworth presides over the 413th District Court in Cleburne.

“Judge Bosworth is an excellent judge,” McDonald said. “I couldn’t be happier.”

McDonald, who has put together a sophisticated media campaign that includes a website devoted to the Chesapeake cases as well as billboards and a weekly 6 p.m. Wednesday royalty owners’ teleconference, told the crowd he’s hired an accountant with years of experience in the oil and gas industry to analyze clients’ royalty checks. 

On the conference center wall McDonald presented a table of one royalty owner’s payments from Chesapeake and other operators over four years. According to the graphic, underpayments ranged from an average of 54 cents per 1,000 cubic feet of natural gas in April 2011 to $1.88 per 1,000 cubic feet in May 2011.

In September, Chesapeake and McDonald are set to have a hearing on the motion to begin trying the Johnson County cases next spring, but ultimately McDonald said he expects Chesapeake to settle. 

The Fort Worth Star-Telegram last week reported that Chesapeake agreed to pay the city of Arlington $700,000 after officials there sued, alleging that the company did the same thing McDonald is charging it did to land owners here: deducted post-production costs it was not entitled to.

“Under the agreement, Chesapeake will no longer subtract post-production costs and the city’s royalty will be calculated based on the highest price received by Chesapeake when the gas is sold or the price established by a formula,” the Star-Telegram reported. “Arlington’s deal mirrors one that Chesapeake reached with Dallas/Fort Worth Airport in 2012 for $5 million. That deal also established a formula for royalty payments.

“Chesapeake also quietly settled with the Tarrant Regional Water District earlier this year when it agreed to pay the district $1.8 million for royalties on 100 leases from January 2008 through October 2011.”

McDonald’s firm is gearing up to handle the cases. 

“We have added four lawyers and six new legal assistants to work on our Chesapeake litigation and we need much more space,” McDonald wrote in an email. “We have over 3,000 Chesapeake royalty owner clients. We expect to have at least 10,000 by the end of the year.”

Barbara Smith owns two acres of land at Bowman Springs Road in Arlington. Chesapeake has a lease on one acre and another company leases drills on the other. 

She only recently heard about the lawsuits, but she’s going to send McDonald her Chesapeake paperwork.

“Chesapeake is paying me less than half what Vantage is paying for the same land,” she said. “I kept calling and they won’t do anything.”

Chesapeake declined to comment.

Taking aim on Chesapeake royalty underpayment

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Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on June 18, 2015 at 6:07

There are professionals who perform that work for mineral owners - lessors and UMIs.  I don't think there are many UMIs that own a sufficiently large interest to make that an attractive proposition however.  The industry usually finds a way to get a lease from those with significant size interests.

Permalink Reply by Henry on June 18, 2015 at 6:25

Pam,

In last night's teleconference, McDonald Law Firm discussed that they are hiring experts on these fees to determine whether what has been charged to a given royalty owner is reasonable or not.  They will do it for you.  You just have to submit your information.

Permalink Reply by Henry on June 18, 2015 at 6:26

All I can say is that McDonald Law Firm seems adamant that the royalty owner is owed the excess profits and that they intend do go after that for their clients.  I, personally, have no idea.  

Permalink Reply by Pam on June 18, 2015 at 7:42

Thanks, Henry, I guess it wouldn't hurt for me to call them.

Permalink Reply by Henry on July 21, 2015 at 23:50

Here is a link to the Hyder Case in Texas.  The family sued CHK for charging post-production costs, even though the lease forbids it.  The Hyders won the initial case, and now they have won on appeal.  Note in the article that the court not only awarded the Hyders the amount CHK took from them, but the court awarded attorneys' fees, as well.  This bodes well for McDonald and his clients.

http://www.star-telegram.com/news/business/barnett-shale/article238...

Permalink Reply by HBP on July 22, 2015 at 5:26

Its good, but it was also language specific, so it may not serve as a broad precedent.

Permalink Reply by Frank on July 22, 2015 at 13:24

CHK does not hold out expense after the fact on my "no cost" lease royalty payments.  They do cut me deep on the price paid per mcf at every well.  Petrohawk paid more to a friend on the same well we share interest in after CHK paid them.  We both have very good no cost leases with the two companies.  The upfront multiplier is the difference.  How does that work?

Permalink Reply by HBP on July 23, 2015 at 5:25

Frank,

It sounds like CHK is giving you the net back price.  If it is a good 20-30% lower than that BHP price in the same well, then it could be net back, in which case they would not be honoring the no deduct language.

Permalink Reply by Henry on August 5, 2015 at 12:19

I sat in on the teleconference tonight -- 8/5/2015.  There isn't much new to report.  They continue to make progress, and are moving along.  I think patience will be the name of the game for all plaintiffs in this effort.  I would guess that this will run for many, many years.  There could be hundreds, if not a thousand, law suits filed in this effort, so some people may see quicker results than others.

Permalink Reply by Henry on August 20, 2015 at 0:26

I have not been able to listen on the teleconference lately, so I decided to scour public reports to give everyone an update on what seems to be going on here.  All of my sources for information are from public news articles, or sites run by the McDonald Law Firm.

The first trial date, for a case in Tarrant County, is set for February 2016.  After t hat, trials come a one per month.  As I said in earlier posts, this could be an effort that goes for many, many years.

The first suit for a Louisiana plaintiff is set for April 2016, in Houston.  McDonald Law Firm is trying to file all of the Louisiana cases in OK or TX.   I guess they think the courts are more favorable to plaintiffs in these states.  They are doing their best to remain in state courts and not get bumped up to federal courts.

The next three paragraphs, from one article, seem to summarize McDonald's strategy:

"The strategy is simple: overwhelm Chesapeake with lawsuits. McDonald's firm began recruiting plaintiffs a year ago and has 10,000 clients so far. The firm is averaging 500 new clients per week and is shooting for 40,000 to 50,000 by the end of the year and eventually up to 300,000 spread across several states.

So far, he's filed suit in 75 cases, with the first set for trial in June. [Henry here:  as I noted earlier, the date has been pushed back to February 2016.]The goal is not to actually try every case but to use the mass litigation as leverage to get Chesapeake to agree to mass settlements.

"We have cases set for trial ultimately every single month, so that every single month, Chesapeake is faced with potentially a very adverse jury verdict," McDonald says. "That's the only thing that makes defendants like Chesapeake ... sit down and work out ultimately a global resolution of a really large problem."

Remember:  McDonald did not make his name in oil and gas.  Rather, he made his name in so-called mass tort cases.  He has done similar cases on medical devices and insurance payouts.

I will try to be better, and listen in next Wednesday.

Permalink Reply by Skip Peel - Mineral Consultant on August 20, 2015 at 1:18

Thanks for the update, Henry.

Permalink Reply by Jesse Joyner on August 20, 2015 at 6:52

That wasn't my takeaway, Jay. Somewhere back in the body of the thread, Henry has repeatedly explained before that the law firm is attempting to change CHK's crooked practices preceding into the future for the law firm's clients. Of course, I could be wrong. But unlike some, I've known to avoid CHK and to avoid all dealings with lying/cheating Aubrey M. for many years.

Must be hard for some to be under lease to CHK, although I'm sure the money is good for those oil-patch insiders who weren't cheated as bad as happened for those landowners in Caddo who got screwed because they were more trusting, even if the insider's pocket is also being picked big time, being as some folks many not want to face that reality.

Again, thank you Henry for all the informative intel. Great job.

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