I just noticed after almost 8 months of receiving royalty checks that Chesapeake added some deductions for gathering and fuel to my production statement. My lease call for a free royalty.
When I called Chesapeake the lady indicated that I had "an enhancement clause" that allowed them to charge me for these additiional items. Does anyone know if this is true?
Ben Elmore will tell you what I would have told you, and he'll be able to help you. So deal with Ben Elmore, and you'll get the story.
Howdy ben. Its nice that the res† of us cant know the answer. Your a real shaler guy. Do you pull wings off butterflies ,o do you just want everyone to know how smart you are?
No Pat, I am happy to tell you what I know. In short, the enhancement language at issue was included by CHK and its landmen typically at the end of some cost-free royalty clauses. The language I've seen provides:
It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all oil, gas or other proceeds accruing to the Lessor under this lease or by state law shall be without deduction, for the cost of producing, gathering, string, separating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas and other products produced hereunder to transform the product into marketable form; however, Lessor's share of any such costs which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from Lessor's share of production so long as they are based on Lessee's actual cost of such enhancements. However, in no event shall Lessor receive a price that is less than, or more than, the price received by Lessee.
Based on conversations I've had with others who have spoken to CHK about this, CHK is using this language to deduct costs for transportation, processing, etc... that would otherwise not be deductible under the cost-free language, under the premise that such costs are incurred to enhance the value of gas.
In the situation you have evaluated, do you think CHK has a leg to stand on? I have discussed this (almost exact) clause w/ contract landmen in regard to a Pennsylvania CHK lease and they indicated it referred to processing or enhancements specifically not the items excluded above. Clearly a misrepresentation if CHK were to try and deduct gathering etc...
Based on the situations I have looked at, CHK is using the clause to do an end run around the cost-free clause. Do they have a leg to stand on? IMHO, no.
If we are paying the "enhancement fees" to help the gas bring a better price,why are we still getting the going rate for gas? Shouldn't we all be reaping the benefits of the enhancements?
That is one thing CHK is a master at is making one statement then throw a clause just the oppisite. One would think if they were making more money they would pay mineral owners. However that is just not the case since they have many lawsuits for breech and failure to perform. Of course the company always has some lame excuse for non payment. Sad they have taken a company that should really prosper and run it in the ground. Their stock prices do not reflect well for all their holdings. However they throw money away rather than keeping their commitments. I heard they have not kept their drilling commitments in the Eagleford. Further they have lawsuits in Michigan,North Dakota,Texas and I am sure other states. They had rather spend money to litigate instead of doing the right thing. And its the mineral owners that always get shorted.
CHK knows that 99% of individual mineral owners won't ever file suit...
And CHK is getting away with "fracking" financial fraud...IMMostHumbleOpinion
CH Unleased Mineral Owner