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
Views: 13754
Replies to This Discussion
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Permalink Reply by Henry on -
Jay,
Let me try to be clear here. Each and every owner can choose his/her outcome when his/her case is filed. No one will be forced into a settlement. If an owner wishes to go to trial, he/she will go all the way to trial, with all the risks/rewards that go with that.
Obviously some plaintiffs will choose a settlement, if one is offered and negotiated. It might be assumed (hoped?) that subsequent plaintiffs could also get a similar settlement, if they choose to take it.
I would guess that McDonald chose one of his most compelling cases for his first trial. If he gets a positive outcome, it will set the tone for all the remaining trials.
But everyone should remember: Each plaintiff has a choice for how to proceed with his/her case: trial or settlement. The choice is not driven by what everyone else chooses.
Having said all that, I will admit that McDonald will make a lot of money if he is successful. But I will give him some credit -- he is taking on clients who have less than 1 acre under lease. That cannot be a great use of his time. But, rather than draw a line, he is taking any and all people who are leased with CHK, regardless of the number of acres they have.
Also, he is not asking the plaintiffs to put up a single penny. In some trials, even when the attorney works on a contingency fee, the attorney asks the plaintiff to pay for expenses such as filing fees, copying, travel, etc. No plaintiff puts up a penny here.
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Permalink Reply by ME on
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Thought I'd forward this here (posted by boone on gomarcellusshale.com)
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Texas Mineral Rights Owners Settle with Chesapeake in Royalty Payment Lawsuit"Prominent Texas oil and gas investor Edward Bass and more than a dozen other Barnett Shale mineral rights owners have settled a lawsuit against natural gas production giant Chesapeake Operating Inc. (CHK) for allegedly underpaying oil and gas royalties and breaching its contracts with the landowners. Originally filed in 2013, the lawsuit alleged that Oklahoma City-based Chesapeake violated lease agreements by selling natural gas production from one corporate subsidiary to another, which depressed the resulting price and the amount owed to each landowner. The lawsuit also claimed that Chesapeake took improper deductions from those royalty payments in order to cover expenses for drilling, production and post-production activities. Some of the leases permitted Chesapeake to pass on production costs in certain circumstances, but court documents showed that those contractual terms were never met."
......seems like a trend is developing....
http://finance.yahoo.com/news/texas-mineral-rights-owners-settle-15...
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Permalink Reply by Skip Peel - Mineral Consultant on -
Less a trend then par for the course. Those plaintiffs with the ability to afford expert council and protracted litigation often end up settling. I followed a couple of such cases locally although not on a par with the Bass Brothers. For the record few are on par with the Bass Brothers. CHK and basically any energy company will tend to draw out the process and when finally faced with a court date they can't postpone make a settlement offer. No company wants to risk setting a legal precedent and creating case law that could be used against them in the future. This is nothing new.
What is needed is a plaintiff with a compelling case that will decline to settle. That will pursue litigation to a verdict. If the Bass Brothers or any similarly situated plaintiff can accomplish their goal through a settlement, there is no need to continue to a verdict.
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Permalink Reply by Skip Peel - Mineral Consultant on
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It's somewhat surprising that they had to bring suit but then the industry as a whole supports more law firms than any other with which I am familiar. They are constantly in court.
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Permalink Reply by JHH on
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Thanks for the update. Feels like the same thing is happening today... just a different player involved.
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Permalink Reply by Henry on
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Here are my notes from the teleconference of 9/16/2015:
This is the final teleconference. If you want more info from now on, go to their web site.
So far, they have filed 400 lawsuits, representing 10,000 plaintiffs. They have another 10,000 plaintiffs signed up, who don't yet have lawsuits filed.
First trial is in Feb. 2016 -- only 6 months off.
That's it. Let's go watch the debate.
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Permalink Reply by Skip Peel - Mineral Consultant on
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I'd rather watch paint dry. LOL!
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Permalink Reply by tc on
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In PA XTO is trying to also get a post-production fee case dismissed because they claim under PA law a "royalty" allows for "net-back method". I don't know exactly how this relates to these other cases, but it does show how the definition of one word can effect a lease and that 9 men/women in a Supreme Court will make the final decision on that definition.
XTO Energy filed a motion Sept. 21 to dismiss a lawsuit filed against it over how it calculates royalty payments. On July 14, the Thiele family and Richard Marburger as a trustee of the Olive M. Marburger living trust, both Butler County landowners, filed a suit against XTO in federal court alleging insufficient payment of royalties. The complaint alleged that XTO had committed a breach of contract by deducting operating expenses from royalty payments to landowners. The suit was filed by Pittsburgh-based firm Jones, Gregg, Creehan and Gerace, which hoped to have it continue as a class-action suit. The plaintiffs would be any landowner who signed a mineral rights lease with Phillips Production before Phillips was acquired by Exxon Mobil in 2011. The leases stated that the landowners would receive one-eighth of the proceeds the company received for gas sales. In its motion to dismiss, the legal counsel for XTO wrote that the company did not commit a breach of contract by deducting post-production costs. The court papers cited a 2010 court ruling that supported XTO’s method of determining royalties. They cite legal precedent set by “Kilmer v. Elexco Land Services,” decided by Pennsylvania Supreme Court in 2010. In that decision, the Pennsylvania Supreme Court held that the term “royalty” when used in oil and gas industry leases permits a “net-back method” of calculating royalties. Under this method, “post production deductions may be taken from the value of the gas sold at the point of sale in order to obtain the value of the gas at the wellhead where it is produced,” according to the motion. Royalties are then calculated as a percentage of that net-back price. - See more at: http://www.thecranberryeagle.com/article/20150930/CRAN0101/70929980...
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Permalink Reply by Franks on
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Do these guys carry umbrella or liability insurance to cover such suits? Just wonder if this really effects their balance sheets, (Robin Hood balance sheets, repo105?)?
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Permalink Reply by Steve P on
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failure to pay royalties owed is not generally an insurable event. If it has underpaid lease royalties by 10% or more, and through some action it had to come up the cash to pay (all of us) back royalties since the start of production of the various shale plays around the country, one has to wonder if it could survive. Not sure a trip to Bankruptcy Court would help, since CHK might lose its leases if it didn't pay. Not sure how that would play out.
Settling for 50 cents on the dollar, but getting a check now, might be a smart move.
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