Replies to This Discussion

Permalink Reply by Greedy Landowner on June 12, 2013 at 5:36

I agree fully with what you say. I have been amazed at the apathy of our local leadership from the beginning on this issue. Not one of them has addressed it in any form. I wish that they could be sent an invitation to respond to this issue on this forum. A couple of kids go to the incorrect school and you get a justice department visit plus front page coverage in the times. Chesapeake steals millions from landowners and not a single word gets printed. They are also stealing from our schools, law enforcement and local municipalities by underpricing and by default undertaxing revenues.

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Permalink Reply by Skip Peel - Mineral Consultant on June 12, 2013 at 7:22

The legislature is unlikely to pass any legislation regarding this issue.  Voters do not make it a priority and hold their individual representatives and senators accountable.  Anyone, including large land holders,who can build a solid case against CHK and afford to pursue the matter for years waiting on a court date will likely be advised by experienced legal counsel to accept a significant settlement offer and avoid the possibility of losing at trial.  Thus no verdict.  The institution which in effect makes laws although as a legal interpretation of existing state law are the appelate courts particularly the Second Curcuit.  Apellate justices are elected.  And a relatively small number of voters decide each election.  I think mineral owners rights should be a top priority for the 2nd.  75% of appeals concerning oil & gas issues state wide over the last 5 years have been heard at the 2nd.  It is a disturbing fact that few of the justices at the 2nd. have a background that uncludes mineral law.

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Permalink Reply by Greedy Landowner on June 12, 2013 at 16:30

I always enjoy your input on these discussions. Do I remember correctly that early on they did something legally which would prevent class action suits, leaving the small tract owner up a creek?

Would they be compelled to pay an attorney to show up at a small claims type hearing?

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Permalink Reply by Skip Peel - Mineral Consultant on June 13, 2013 at 8:46

Greedy, I'm unfamiliar with small claims actions.  The civil courts require that members of a class have virtually identical circumstances.  That means that any variance in lease terms thwarts certification as does mineral ownership in different production units. etc.  This level of identical circumstance means all would have the exact same lease, to the same company, in the same drilling unit, etc.  That's a simple example from memory concerning discussions with my O&G attorneys. Certifying a class is extemely difficult.  If it were not, it would have been done a number of times by now,

 

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Permalink Reply by w.r. frank on June 13, 2013 at 15:06

Please post the lawsuits. Even though LA may not currently allow. Class actions, when the extent of chk's flagrant disregard of contractual obligations become known, a class may be certified on general fraudulent conduct.

Also lessees may share expert witnesses and legal research to hold costs down in individual suits. CHK is a company without a grain of honesty or integrity.

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Permalink Reply by Manda White on June 13, 2013 at 15:39

This is troubling!!! I will keep close watch on postings for up to date news and I will keep watch on my royalties with Chesapeake. I am new to this. So I will definitely keep all paper work from them and do diligent follow up.

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Permalink Reply by j garrett on June 13, 2013 at 17:42

Is the concept of "an arm's length transaction" and selling to "an unaffiliated third party" a law or does it have to state that in a lease?  Chesapeake sells to a wholly owned subsidiary, CEMI (Chesapeake Energy Marketing Inc).  Their agreement with CEMI allows CEMI to deduct costs specifically disallowed in many leases (marketing, transportation etc), thereby reducing the amount Chesapeake realizes and pays royalties on. 

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Permalink Reply by Henry on June 14, 2013 at 0:40

I think there is something in the Louisiana code (I cannot find it right now) that says the operator must operate in a way that is mutually beneficial to the operator and mineral owner.  Yes, that is vague.  And sometimes the interests of the operator are not the same as those of the mineral owner.  E.g., the selling of gas at low prices to their affiliates is beneficial for CHK but not for the mineral owner.

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Permalink Reply by HBP on June 14, 2013 at 6:28

This is not directly in response to Henry's "mutually beneficial" statement.  But where I would hope for some case law development to address CHK like behavior is through 31:122.  122 has been traditionally used to address specific items, however I think it would be good to have the "duty to market" to be read more broadly.  Not just a duty to find a market, but a duty to market the lessor's portion fairly or to the mutual benefit.

Also, I think it is not too much to ask to have better language codified that allows a lessor to make written request for information related to the marketing of their gas or the costs associated, with a 30 day response time before penalties, etc...  However this will not get done in the current environment.

I saw some pre-deduct prices this Spring from lessees other than CHK that were suspect.  CHK may steal greater amounts and more often, but pennies are getting shaved to the Lessor's disadvantage in a lot of areas out there.  Feel free to post your prices (pre deduct gross, not CHK's netback price) for production month February and March (not the check date, the production month).  Post the lessee, operator (if different) and Township if willing.

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Permalink Reply by Henry on June 14, 2013 at 23:13

HBP,

We would all like for some case law development in this area.   But if CHK keeps settling cases, rather than going to trial, we won't get any.  Why would they ever let one of these cases go to trial and risk a bad judgement?

And, my data for production in Feb 2013 (I don't yet have March data) say I was paid $3.02 by BHP (lessee and operator)  T11N-R11W.   The only deduction shown was severance tax.

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Permalink Reply by 1kw6x71km1v37 on June 14, 2013 at 13:16

A lease should specify royalties will be calculated on the price at the point of transfer of ownership in arms length transactions to buyers not affiliated with the operator, not to any "sweetheart" buyer with a backward obligation to the operator. I always thought it desirable to include language whereby the royalty owner reserves the right to audit, to the effect the operator will pay any balance due on under reported royalties plus a 200% penalty, actual attorneys fees not to exceed $600/hr and the associated court costs.

If the operator balks at the above terms, which will cost him nothing if he's on the level, then you know the operator's true intention is to jack you.

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Permalink Reply by Andrew M. Brewer on June 18, 2013 at 5:14

Leases also should reflect payments for "plant products" which is propane, ethane, butanes and pentanes, etc processed out of wet natural gas sold to the downstream processing companies.  Even the Bath Form reflects this.  This is true even if you are an UMO.  Most people are completely unaware of this which allows those who lease from the mineral owner and/or the operator to pocket this.  Funny how the operator changes every couple years, keeping the same physical address!  Not so funny when they actually lower your interest percent on your check stubs after several months of production, reflect the actual amount sold on your check statement and always giving you the run around when you call and question them.

The real sad fact is how many mineral owners are clueless to the hundreds of greedy billions these companies are making in the most abundant gas field in America and not getting their share as reflected in their contracts.

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