Replies to This Discussion

Permalink Reply by bullbayou on June 18, 2013 at 5:45

Most of the people replying to this discussion are missing the point here.  In all of the lawsuits filed against CHK, the leases involved in the lawsuits contained some of the strongest "no cost" provisions imaginable!!  IT DOES NOT MATTER!!!!!  Hell, it does not matter about anything you put in your leases!!  Chesapeake does not abide by anything.  And then you send them a demand letter about the problems with the lease, and they don't even respond!!  They are the operators of the well, and receiving the proceeds from the sale of the gas, and they don't care what the lease says!!  Chesapeake is doing this to the big sophisticated landowners, as well as its partners.  The little guy has NO chance!!  That is why there needs to be a public uprising against Chesapeake, so that the legislators, attorney general and the Justice Department may take note!!!  And I wouldn't be surprised, that at some point in the future, it is going to be discovered that what Chesapeake is doing is not only illegal, but fraudulent as well.  So all these comments about what you should or should not include in a lease is fine, but it has no bearing in this discussion group.

• ▶ Reply

Permalink Reply by Andrew M. Brewer on June 18, 2013 at 6:12

You have a great point about mentioning a public uprising against Chesapeake, et al so that the lawmakers can take notes and change the mineral code.  But the current remedy is to file suit with these companies, so that they pay what they owe the mineral owners for the products they extract and sell.  Believe me, I've been a victim for years.

Why not write a good editorial to the Shreveport Times?   I also agree with open protests against them, in Baton Rouge on the capital steps.  A bill with 1500% penalty should be proposed and passed if you catch these companies stealing AND fraud is proven.  This would make them honest and the mineral owner who suffers gets to benefit from the theft.  You have made valid points here!

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on June 18, 2013 at 6:25

Possibly. Then again maybe we have our own opinions and points to make. As for myself I know that it does matter what language is contained in an oil and gas lease.  The words "no cost" are not sufficient to achieve the desired result. Specific language is key to the ability to prevail in a court of law.  And IMO the election of appellate court justices provides the best chance to protect the rights of mineral owners/lessors.

Big sophisticated landowners sometimes do prevail in litigation with CHK and other operators.  We have discussed a number of them over the years here on GHS. Even more do not come to the public's attention because the operator settles rather than risk an adverse verdict.

I have a year's lobby experience at the LA state legislature.  IMO it will be impossible to garner the support of a sufficient number of legislators for any meaningful reform of the mineral code.  I don't know our Attorney General personally but do know that he is subject to the same political pressures as the legislator.  I would consider it worth the time of mineral owners to write the AG as long as they are capable of putting much of their emotions aside, writing a straight forward, factual letter and providing documentation.  An experienced O&G attorney or O&G CPA might draft a form letter that mineral lessors could fill in their specific personal information and attached copies of their supporting documentation.  That form letter could be made available to whomever cared to write the AG.  I'd deem that a reasonable effort.

bullbayou, I admire those who would take action rather than stand on the sideline and complain however there has to be leadership that channels the energies of the average small mineral owner to the right political target and translates those energies into something that the target finds compelling and difficult to ignore.  Good luck in your efforts and I hope you will accept that there are members, such as myself, who have their own opinions.

• ▶ Reply

Permalink Reply by Henry on June 19, 2013 at 23:19

Skip,

I missed the cases in which landowners prevailed over CHK in the courts.  Can you share some of those?  

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on June 20, 2013 at 1:34

Henry~

My comment above of is not specific to CHK.  It concerns the importance of lease language when litigation occurs regardless of operator.  I don't see any cases lost by CHK in my most recent copy of the Mineral Law Institute newsletter.  For those who are interested in tracking litigation involving the state mineral code, I suggest subscribing to the Mineral Law Institute newsletter.  It's hardly what the name implies as you get a large three ring binder and reports on cases in multiple jurisdictions and then continuing updates.  It's not exactly light reading.

http://mli.law.lsu.edu/

• ▶ Reply

Permalink Reply by Two Dogs, Pirate on June 20, 2013 at 4:17

Henry, Wick Phillips law firm out of Dallas/Ft Worth won a case against CHK in the 17th District Court in Tarrant County, TX. Final judgment was handed down on 8-7-2012. the case is in the appeals process. CHK was ordered to pay over 1 million and $250,000 in attorney's fees. David Drez was the lead attorney for the firm.

• ▶ Reply

Permalink Reply by Andrew on June 23, 2013 at 22:03

The sheer amount of Haynesville litigation in which Chesapeake is involved is immense. They are bound to lose at least some of these cases. If you are looking for a case involving a particular issue I might know if Chesapeake has lost any recently. 

• ▶ Reply

Permalink Reply by Henry on June 23, 2013 at 23:32

Andrew,

"They are bound to lose at least some of these cases."  Only if they go to trial.  I will bet you that if the case really matters, Chesapeake will settle it, rather than go to trial and risk a ruling that opens the floodgates for other, small landowners. 

It's pure economics to them -- pay off the one or two large landowners who have the means to sue them.  Then continue to take advantage of the thousands of others who cannot do so.  They cannot lose with this strategy.

• ▶ Reply

Permalink Reply by Andrew on June 23, 2013 at 23:38

I have no way of knowing how many cases get settled and what their facts are, but you may well be correct in assuming Chesapeake is prone to settle. I do know that in several cases they have proceeded to litigate when their arguments are (put mildly) lacking in merit.

• ▶ Reply

Permalink Reply by j garrett on June 19, 2013 at 16:49

That's why my question was about the law, not lease language. I'm in Texas.  I want to know if the concept of an arm's length transaction and/or selling to an unaffiliated third party is a matter of law.  Texas has a 100+ year history in oil & gas production.  Surely in that time legislation has been passed that does not allow an operator to form another company, sell to itself cheap, and pay royalty owners on the cheap sale.  Does anyone know?

• ▶ Reply

Permalink Reply by bullbayou on June 20, 2013 at 1:02

OK, j garrett, I will respond to you like I did to the others.  IT DOES NOT MATTER!!!  Listen people, it does not matter what the leases say or what the law says, Chesapeake is doing what Chesapeake wants to do!!  Chesapeake could be doing all the following:  1)  Charging deductions when the lease says it can't.  2)  Selling its gas to an Affiliated 3rd party on the cheap when the law says it can't.  3)  Passing on penalties its has incurred from its awful gas contracts to its royalty owners, which I don't know if that's legal or not.  And they will keep on doing until some legislative body calls them on it.  Because the small guy cannot afford to sue. And for the big guys that do sue, they will keep those suits going as long as they can without settling or going to court.  Chesapeake has tons of debt, and this is a way to increase its cash flow quickly, whether it's legal or not.  They are just buying time at their royalty owners expense.

• ▶ Reply

Permalink Reply by Andrew on June 23, 2013 at 21:58

In all of the lawsuits filed against CHK, the leases involved in the lawsuits contained some of the strongest "no cost" provisions imaginable!!  IT DOES NOT MATTER!!!!!

Regarding this point, bullbayou is correct in many cases. For example:

MAGNOLIA POINT MINERALS VS CHK LA AND PXP LA

"The language and terms set forth in this Exhibit shall prevail in the event of a conflict between this Exhibit and the foregoing printed Lease...

"[N]o cost shall be charged or allocated to Lessor’s interest except severance and other applicable taxes."

HBM INTERESTS v. CHESAPEAKE LOUISIANA

"2. The royalties to be paid by Lessee to Lessor in all instances and upon all substances herein leased are “twenty-five percent” (25%) of said substances and the royalties provided for in the printed form are hereby amended to read “twenty-five percent” (25%) in place of one-eighth. The royalties to be paid to Lessor are subject to the following provisions:...

"(b) The royalty to be paid the Lessor on gas, casinghead gas, and gaseous substances shall be the market value at the wellhead for said gas, casinghead gas, and gaseous substances produced from said land and sold or used off the premises or for the extraction of gasoline or other products therefrom. Notwithstanding anything contained to the contrary in the previous sentence, Lessee shall not sell any gas, casinghead gas, or gaseous substances of Lessor at a price that is less than the price the Lessee receives for the sale of its gas produced in the field and Lessee shall make every effort to sell the gas, casinghead gas, or gaseous substances of Lessor at the best price available in the field where produced. The price received by Lessee for the sale of its gas in an arms-length transaction with a third party (one who is not a Subsidiary or Affiliate of Lessee) in which Lessee receives no other consideration shall be conclusively presumed to be the best price available in the field.

"(c) As a condition of Lessor entering into this lease with Lessee, Lessee in computing Lessor's royalty shall not deduct the cost of treating, gathering, dehydrating, compressing, extracting, processing, manufacturing, transporting, or marketing (except actual charges paid by Lessee in arms-length transactions with unrelated and unaffiliated third parties for delivering the product to market)...."

 

• ▶ Reply

• ‹ Previous
• 1
• 2
• 3
• 4
• Next ›
• Page