I didn't receive my April royalty payment from Chesapeake.  When I called to ask why, I was told that my unit had been audited from the first day of production (which was 10/1/10) by a "third party."  I was told I am not permitted to know the name of the third party nor am I allowed to see or know details of the audit because I do not have an operating interest in the wells.  Supposedly, CHK mailed a letter to me on the 29th of April; however, having already been told what I not permitted to know, I don't expect the letter to be very informative....other than they are now taking my royalties.  Given the fact they have cheated me from day one of production by charging exorbitant expenses and, even at one point tried to con me out of my bonus money, I am not surprised by this turn of events, but I am mad....really mad.   However, the CHK rep told me I shouldn't be upset because they are not taking "my" money...really, it is "their" money. 

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So Chesapeake says the audit determined it has been paying you too much and is not taking "their" money back?  If so, would they say when they would resume your royalty payments... or if the well is even producing?  What a mess!

I have two leases with Chesapeake.  The royalty checks arrives no latter than the third business day of the month. Until this month. No check. Anyone have a Chesapeake telephone contact number?

Did you check the courthouse to see if they filed a revised division order showing new ownership of the minerals you are losing. We went through something similar a couple of years ago with a different co. They too said they had paid us too much and we didn't own some of the minerals they initially thought we owned. They filed a revised division order and it was wrong. I contacted the attorney for that company and showed him per deeds that he was wrong and it was corrected. When they first decided that we didn't own all the minerals we had been paid for, they reversed our amount and we had a negative balance with the co. When it was corrected we got our back pay.

Kittycatmama, we're having a similar issue regarding mineral ownership/mineral title on a producing well in Louisiana. Are operators required to file 'Revised Division Orders"?

I don't know if they are required to file a revision but the operator of our well, EnCana, did. I caught the error when we received the first division order. It showed us with wrong interest. I contacted everyone but they still reversed our pmt.  We were leased with another co. so I got email contacts of both companies and copied each with info on our correct decimal interest. They were both good about working with us and finally it did get corrected and we did get ALL back pay. And they did a revised DO

It sounds like CHK has either audited the production volumes and payments to catch accounting errors leading to overpayments to royalty owners, or they have revised their division order title opinion to reflect different ownership. You should find out which case is yours.

If they are merely withholding money they previously overpaid you, there is not much you can do to dispute their accounting as a royalty owner. However, your payments should resume once the overpayment is recouped by CHK. You should still receive monthly production statements from them showing your balance and the credits applied.

If you are no longer receiving any statements from CHK they may have revised their division order title opinion and determined that you have less or no ownership in the unit. This may be incorrect, but the burden will be on you to demonstrate your ownership to them with title records. Operators want to pay the right person, so if you do this they will usually correct the division order and put you in pay like they did with kittycatmama. If they determine your interest is merely smaller, they will most likely withhold the amount you were overpaid from future production. Keep in mind that that if they believe you have no minerals at all in the unit they may ask you to return the royalties they previously paid to you.

Andrew (and kittycatmama) thank you for your reply.  It is interesting...if CHK has audited the production volumes to catch accounting errors, then I would say this...CHK really only has (in my mind) an operating interest in my unit since Questar is the actual operator and I know for a fact that CHK has an expense-free agreement with Questar, yet CHK has charged me with a very high rate of expenses for production as though they have taken physical possession of the gas produced....I don't think so.  Then if CHK is now questioning my ownership of the minerals after almost five years, why?  I can certainly prove ownership of mineral rights.  Right now I am waiting on Chesapeake to tell me why they have taken this action.

Judy,

It would be prudent to get written reasons from CHK for the payment interruption. (Reasons such as "we overpaid you" and "you don't own the minerals" are not sufficient without further explanation.) The records of your correspondence with CHK may be very important to you later, so save everything. 

Well, I did get a written reply from CHK.  It seems that according to CHK  "QEP, the operator of the Wells caused the negative balance due to adjustments"  all the way back to 2010...I got a 9 page statement recreating entries for over four years..it's really cool...the first 2 years look like they underpaid me and are making it up (remember LA law no underpayments recovered after 3 years?)  I think CHK must have just developed an app for royalty fraud...it might be a tad obvious but other than that, a work of art.

Further CHK advises "the price shown on my royalty statement reflects the price paid to CHK by QEP" AND CHK does not charge me for ANY expenses that CHK has not incurred (currently they are charging me 44% which sure seems high for a company that isn't the Operator). And, last but certainly not least "QEP is withholding severance taxes. The amount shown on my royalty checks is the amount withheld by QEP and paid to the state."

After thinking about CHK's letter I decided they must have acquired QEP's permission to use their name because they use it with such aplomb. And, course, they have a pro quid pro agreement.

HOWEVER, there is a really big flaw and I wonder if CHK told QEP that they only hold 80% of my lease.  CHK sold 20% to Freeport-McMoran (formerly PXP) and evidently Freeport did not get the memo about the negative adjustments.  Plus CHK is charging me quite a bit more than Freeport for severance taxes.

It would take a real idiot to believe QEP adjustments would only affect 80% of a lease, so I have to believe QEP was not aware of this fact.  Well they are aware of the fact now because I told them so and asked for an explanation as to how this could happen.  Make no mistake, Chesapeake defrauded me when they withheld my April and May royalty payments.  I am waiting on Questar's response to my letter.

Be aware that under the code, there are limited routes for a lessor to compel information directly from the operator (rather than through their lessee), but it is possible.  As you create your records of each's responses, remember you may eventually have to get Freeport's (FCX) own response (but  if FCX hasn't adjusted it, then you may have no reason at this point to contact them - I couldn't tell if you were getting CHK and FCX checks or if CHK was administering it all).

If the inconsistencies you describe are correct, then eventually you may save some headache by having an attorney experienced in royalty underpayments provide a review.  But if you continue on your own, be sure to document the items and remember that your lessee is your primary contact, but in a non-operator situation, they will try to claim "we are just passing along what the op is giving us", however the code does not allow such passive responses - they have to show the math as to each production month.  

Non-op situations have the most occurrence of payment error by far - for the obvious reason that you are adding one more link in the information chain.

Judy, as everyone has said, keep ALL correspondence. Try to get email addresses from ALL of the companies involved. Copy all when emailing and be sure to have your owner no. and serial no. of the wells in question when emailing or sending other correspondence and always keep it civil. If other people are involved in your section, involve them too as part of a team. If necessary, certify mail with return receipt. Be relentless in your correspondence and never give up. Good luck

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