Treating and Gathering Deductions not in the Lease, but being deducted from royalty checks
If treating and gathering are not mentioned in the lease, what tells me that they can deduct it from your royalty checks? Section 4b of the lease states the following.
The royalties to be paid by Lessee are: (b) on gas, including casinghead gas, or other gaseous substance produced from said land and sold or used off the premises or for the extraction of gasoline or other products there from, the market value at the well of one-eighth of the gas so sold or used, provided that on gas sold at the wells the royalty shall be one-eighth of the amount realized from such sale; such gas, casinghead gas, residue gas, or gas of any other nature or description whatsoever, as may be disposed of for no consideration to Lessee, either through unavoidable waste or leakage, or in order to recover oil or other liquid hydrocarbons, or returned to the ground, shall not be deemed to have been sold or used either on or off the premises within the meaning of this paragraph 4 hereof; (c ) on all other minerals mined and marketed, one-eighth, either in kind or value at the well or mine, at Lessee's election, except that on sulphur the royalty shall be one dollar ($1.00) per long ton.
I was mislead about the deductions and was not told upfront about these deductions.
As a landowner, it appears that they silently wrote it hidden and misunderstood. Even though there is nothing that states the lessor cost or expenses.
Views: 4039
Replies to This Discussion
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Permalink Reply by John Brewster on -
Joel:
You may want to Google Exxon v. Middleton. Market value at the well is not as clear as you suggest.
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Permalink Reply by DrWAVeSport Cd1 on
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Mr. Brewster,
Good Afternoon to you. With all due respect, Robyn Coffey of Tarrant County, Texas, filed suit against Chk, et al, for exactly what is being discussed in this thread. This suit was quickly voluntarily dismissed...?????
Mr. McClendon and Chesapeake Energy, et al, the Chesapeake Board, and its legal reps, will never allow a lawsuit like Ms. Coffey's to go to court, IMHO.
It would be interesting to hear your opinion on this. That is what GHS is all about, getting different views on subjects that concern GHShale stakholders.
DrWAveSport Cd1 9/24/2011
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Permalink Reply by Henry on
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DrWAVeSport,
Did Robyn Coffey's suit get dismissed? If so, can you say why, or point me to an article?
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Henry,
Yes, "voluntarily" dismissed. IMO, both sides "reached" a satisfactory "solution"...
Often in the best interests of the "deep pockets" side, a NDA or CA is reached, and both sides sign agreement to remain silent...
For how much $$$, who knows?
I'm still looking under "shale" rocks for this one (LOL).
DrWAVeSport Cd1 9/24/2011
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Permalink Reply by w.r. frank on
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How about a link, citation or, better yet, post a copy of the plaintiff's petition. "No cost" royalty clause, or not?
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WRF,
Robyn Coffey v. Chesapeake Exploration, LLC, and Chesapeake Energy, Inc.
Case filed 9/27/2010 "Voluntarily Dismissed by Robyn Coffey" on 10/20/2010
Civil Action No. CIV-10-1054-C Filed in U.S. District Court, Western Div. Oklahoma:
(paraphrasing here) Coffey believed royalty owners due approx. $5Million in royalty moneys by Chk Exploration and Chk Energy Inc.
http://www.oilandgaslawyerblog.com/Coffey%20v%20Chesapeake.pdf
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Permalink Reply by John Brewster on
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Thanks. I had already read the Petition. There are two claims: (1) breach of contract based on the royalty clause of the lease, and (2) breach of the implied covenant to market. Basically the royalty clause is ambiguous. It is unclear what the point of sale was to be, and unclear whether the gas price on which royalty is calculated was to be market price or proceeds. These are very common arguments. The suit was filed in Federal court as a class action. It may have been dismissed on procedural grounds, or the class may not have been certified for some reason. If that were the case, Coffey would have dismissed. If this were not a class action you wouldn't see 6-7 law firms in three states representing the plaintiff. The fact that plaintiffs allege $5 million in underpaid royalties means nothing - just a claim, not proof or evidence. Sorry that I don't know the outcome. I'll try to look it up on Monday, and let you know.
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JB,
Agreed. However, I will take the side of the road that is opposed to yours. I think Ms. Coffey walked away with "hush" money. I admit, I have been wrong before, and am certain to be wrong again.
I am looking forward to you proving your points and not mine. It would be quite enlightening and encouraging if you are correct per a "voluntary dismissal" by Ms. Coffey. Maybe, she saw "the light." LOL
Thanks for your perspective.
DrWAVeSport Cd1 9/24/2011
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Permalink Reply by John Brewster on
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I wasn't predicting or taking sides, only speculating on the likely possibilities. I didn't mean to imply that the plaintiff "saw the light." Voluntary dismissal is not a term I am familiar with, so it could mean anything. I'm also surprised that dismissal was so quick (within 30 days of filing). That suggests something procedural rather than a settlement IMHO.
In the legal profession, we don't consider settlements as being hush money. Believe me, the system has gotten so expensive and so uncertain that litigants are often wise to settle no matter how good they think their case is. You never know how things will turn out these days, especially when the defendant has deep pockets. I would add, however, that class actions do not settle as often. Those are driven not by business people, but by plaintiff's lawyers who only get paid if there is a final adjudication in their favor or a big settlement. So, I'd be surprised if Robyn Coffey got "paid off" by CHK. The lawyers wouldn't have made money in that situation, and they went the class action route to try to make big bucks. It will also be interesting to see what the record reflects. We may not be able to determine what really happened.
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Permalink Reply by John Brewster on
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I can't comment on the specific case without knowing the facts. Obviously one can't draw any conclusions based upon the lawsuit being dismissed. Most likely that was the result of a settlement, or a successful motion for summary judgment. The former would not reveal who may have had a better case. The latter would suggest that the right party won, but that's not always the case as one party may not have filed a valid complaint/petition - meaning the result did not reflect who had the law on their side. I have served on the board of a $6 billion producer. It would be extremely rare for a board to have knowledge of a lawsuit except fpr litigation that concerns material issues where the outcome could affect the corporation. If Coffey was a royalty owner it is doubtful the case was that significant. I disagree with the UNM law review article concerning mutual benefit. First, it is out of date. Second, it generally expresses what the author thinks the law should be rather than what it is. Sadly for royalty owners, after it was written there were few instances where royalty owners recovered a share of take-or-pay settlements. I myself was unsuccessful in such a suit. IMHO the concepts espoused in the article don't resolve the post-production deduction issues or CHK's use of subsidiaries which have dominated our dialogue in the last couple of days. Nevertheless, as a retired E&P guy who is a substantial royalty owner, I am in sympathy with the author's perspective. I just don't everyone to wrongly assume that he correctly states the law.
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Permalink Reply by Joel on
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Texas case? I guess I assumed the OP was in Louisiana but if they're in TX, that might apply.
If it's Louisiana, the appeals judgment in Merrit v. Southwestern Electric Power in the Louisiana Court of Appeals (1986) is informative and Martin v. Glass is as well. At least, that's what my attorney said. ;)
Law is, as you point out, much less clear than accounting. Sad, that.
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Permalink Reply by Tommy Johnson on
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How would this effect those that did not sign leases?
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