Understanding an unleased mineral owner well report from Chesapeake

My investors finally got put in as unleased mineral owners on 5 wells in one section with Chesapeake. They get their first check this week ( after owning the property 20 months). First check has 10 spots and each say January 2019 Cutback and an amt. They get the total of the amount which is certainly no where near what they are due. A day later they get a copy of well EXPENSES but not well production but we can look that up on Sonris. The only thing the report says is PERIOD 1. It doesn't have ANY dates. I have been in touch with their legal dept. and they don't know what it means. Said they have to wait until revenue tells them. Has anyone experienced this. Does anyone know how Chesapeake defines Periods 1, 2 etc without any chronological data.

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I am an oil and gas attorney. I practice in Texas.  I retired some years ago as vice president and general counsel of the largest upstream company in the United States.  I am also a non-operating working interest owner in north Louisiana.  Your issue concerns one aspect of a matter about which I am currently working.  First, the devil is in the detail and as you have noted, you do not have and will not get that detail.  Second, as a small interest owner in a single tract it is unlikely that you have, or are perceived by the operator as having, the resources to challenge the operator's misconduct.  Third, not that it is any comfort, your issue is very common and often deliberately so.  In essence the operator co-opts the unleased mineral interest owners share of production.  

The laws of Louisiana are very clear on your rights.  You can easily find the specific statutes and commentary online.  I assume from your description that you are an unleased mineral interest owner.  If so you are subject to a set of rules different than a leased non-participating interest owner. You would not be subject to a risk penalty, but would be liable for your proportionate share of the cost of drilling and completing the wells and the cost of supervision and production.  You are also entitled to the exact, itemized amounts of these costs.  I suggest you send Chesapeake demand letter to such effect, copy their general counsel (available on line) and the oil and gas division of the Louisiana Conservation Commission. Send all of that certified, return receipt requested.

Finally, I suggest calling the oil and gas division.  Numbers are available on their website.  You will have to work at ultimately connecting to the right person, but will eventually succeed.  Hope you succeed.  The issue I am focused on is the overhead fee being charged on older, marginal wells.  The fee being charged by many operators produces a profit far in excess of the value of the hydrocarbons produced.  It is literally an issue of first impression any where in the United States. I believe the same issue applies to unleased, force pooled interest which are subject to a supervision charge.  This is particularly egregious as those parties did not agree to an unfair, inequitable fee that, in effect, rendered their property worthless.

Best wishes.

Welcome, Robert.  Your advice is spot on.  Thank you.  In my experience,  a demand letter originating from a mineral owner is more often than not ignored here in LA even if properly written and sent.  A demand letter from an O&G law firm known for litigating is viewed differently.  Although the cost to have an attorney send a demand letter is pretty modest, the good ones will decline to send a letter if a client does not commit to follow up with a suit if the demand is ignored.  Firms with a reputation of bringing good suits are viewed differently by operating companies than those that fail to litigate.

yes.  It really leaves the small owner with few choices.  There has been some success with lessors and royalties through class action firms, but nothing that I am aware of in the forced pooling/cost area.  Thanks for your comment.

Thank you for your reply and for you info, Robert.


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