Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on November 26, 2013 at 3:27

Louisiana courts will not certify a class action on this issue.  You can however seek out similarly situated lessors in your unit, and possibly adjoining units depending on details.  The best means to find and contact those lessors are through Interested Party lists.  An IP list accompanies each and every drilling unit application.  They are available from the law firm that represented the operator in the unit application for a fee.  There is also a copy on file at the Office of Conservation - Shreveport District office which may be copied for a nominal per page charge. Although there are motivated lessors here on GHS, what you need are lessors in your unit with the same lease agreement to BHP who would also agree to participate in legal action against CHK.

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Permalink Reply by HBP on November 26, 2013 at 4:21

Some advice in these scenarios:

If your lease is with BHP and the CHK operated wells are coming in low for the same months (as low as you describe it, not slightly low, but much lower) then CHK is likely passing along a netback price to BHP to calculate royalties that they pay to you.  You would notice BHP as your lessee, they have the duty to correct the lease compliance issue.  I have had a few of these and resolved each, but mainly when CHK is NOT the lessee. 

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Permalink Reply by HBP on November 26, 2013 at 4:31

You could go the the "similarly situated" route, but due to BHP being your lessee, it can probably be handled easier.  Also, remember that your lessee is BHP, so you may not have a direct cause of action against CHK.

 On these "no deduct" cases it is difficult to join "similarly situated"  matters because the language on the clauses is all over the place.  For people directly leased to CHK, where CHK is not honoring your no deduct language, you would be right to address it with them, but since the language is the crux of the issue any differences will make matters difficult to join.

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Permalink Reply by 1kw6x71km1v37 on November 26, 2013 at 5:41

A third possibility is an operator may have sold future gas production at lower than  market value prices under a hedge agreement. This can be required by debt covenants with creditors. Nonetheless, the operator is obligated to pay lessors their royalties calculated on FMV if I am not mistaken. Wouldn't be the first time....

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Permalink Reply by jim weyland on November 26, 2013 at 7:08

 a producer may hedge his production (i recall per FASB 133B and, no, i'm not an accountant).

he should not/cannot hedge production that's not his, i.e. the production of fellow WIOs or of his RIOs.

note: just as any party with credit sufficient to be able to convince a counterpart that he would be able to meet with (the sometimes vicious) margin calls, per mark to market provisions, arising from market price swings, in theory, a RIO could hedge his production.

however, i'm not personally aware of anyone who's done so. 

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Permalink Reply by IRielley on November 26, 2013 at 6:12

Thanks Skip, HBP and cheap shot for the very helpful responses.

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Permalink Reply by Ann Edgerton Darling on November 26, 2013 at 6:30

LRielley,

I have been watching all the deductions made since receiving the letter from Jeff Lenocker a few month ago.  It seems as though they are now withholding a couple of hundred dollars per month and I can't figure out what for.  I live in Florida and my siblings are in Louisiana and between the 4 of us that amounts to about $800 per month.  I would definately be interested in a class action suit if you can get an attorney that can honestly represent us.  . 

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Permalink Reply by Skip Peel - Mineral Consultant on November 26, 2013 at 6:42

Ann, due to the insurmountable nature of requirements by courts for class certification for cases involving royalty deductions, it is highly unlikely that you will ever have the opportunity to participate in a class action in LA.  Those serious about litigating with operators over this issue will need to form small, cooperative groups where the specifics of operator, location and lease terms are substantially, if not exactly the same.  And the one most important criteria is being burdened by a lease with a No Cost Royalty clause with similar, if not the exact the same language.  Those without a No Cost Royalty clause will have no cause of action.  There are a few attorneys/firms capable of successful litigation against operators over royalty deductions.  All will tell you that undertaking such litigation will be costly and take years.

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Permalink Reply by Steve on November 26, 2013 at 9:15

There is a lesson here for everyone in all shale plays - don't do business with Chesapeake or anyone that does business with Chesapeake and let everyone know how you feel about that on every blog and forum you come across. Call or write to your Oil and Gas Board and send a letter to your State Representative and Attorney General. Slam the door in Chesapeake's face if its not too late. Get proactive when you are cheated. They have billboards spread out across Louisiana. Get landowners who are cheated and put money together and put up your own billboards warning landowners.

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Permalink Reply by Steve on November 27, 2013 at 3:24

You could start by selling any Chesapeake stock you own. If you are an investor in their stock you are part of their operation.

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Permalink Reply by Ann Edgerton Darling on November 26, 2013 at 9:21

This doesn't surprise me.  Thanks for the information.

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Permalink Reply by jim weyland on November 26, 2013 at 10:36

This site enjoys the benefit of having numerous participants very, very experienced in the aggregate in all relevant matters. So, I believe it when i read here (and by more than by one participant) that LA won't certify it as class actionable when RIOs are being allegedly unfairly treated by being "value chained" and with respect to transfer pricing. I believe, but I don't understand.

IMO, in principle, this sort of alleged behavior (on a very minor scale, comparatively) was dealt with in TX many years ago. I am familiar with a situation where most if not all nonoperating WIOs were selling their gas production pursuant to provisions of the parties' JOA. In other words, they were letting the operator market the stuff.

The operator in this instance was "selling" the gas production to their affiliated marketing entity for flat index pricing. That entity was then selling the gas production for index "plus" prices. Of course, there are very few secrets in the business. Upon becoming aware of what was going on, the afflicted producers requested that the operator pass through the "plus" portion on to them as to their volumes. In this case, the operator saw the error of his ways and acceded to their request. Case closed.

Well, not quitely. It came up again in another instance (the company I worked for was not in this project), where the same operator felt like he could tell the non-ops to "pound sand".

Understand, this was not a fly by night operator.One time or another, you've probably filled with his his branded gasoline. It's my understanding it went to trial and the non-ops prevailed. I also want to remember this operator was making it his practice to not pass on the "plus" amounts to RIOs. Of course, in due time, they found out what was going on. So, it was another trip to the courthouse. That the RIOs prevailed is my understanding. I never heard about anyone else in TX trying the same stunt(s).

I think it belabors the obvious to state that I'm not an attorney. I just find it hard to believe that the state would allow an operator to so profoundly "value chain" and "transfer price" the RIOs (not even taking into account alleged instances of failing to abide by seemingly clear language requiring a RIO to be carried until off-lease) .

If a WIO was selling JOA would the state allow the same to happen to him? IMO an operator owes the same fidelity to RIOs as to non-ops selling JOA.

If a well in LA was drilled on federal or indian lands would the state would allow the same alleged conduct to go on? What about on state lands?

In closing, as to business, I remember something one grandfather told me as a young man: "son, if you lie down with dogs, don't be surprised when you get up with fleas."

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