Chesapeake Energy facing another suit over Barnett Shale royalty fees

Chesapeake Energy
Aubrey McClendon, former CEO of Chesapeake Energy.

Involves oil/gas leases covering more than 5,400 Barnett Shale mineral acres, more than 750 producing gas wells

More than 30 business entities and individuals are suing Chesapeake Energy Corp. (NYSE: CHK) based on claims that the company structured a series of contracts in order to receive excessive fees and other charges after the 2009 sale of its Barnett Shale midstream assets.

Image by © Craig Aurness/CORBIS
Image by © Craig Aurness/CORBIS

The lawsuit, which includes Fort Worth’s Kimbell Art Foundation, alleges that Chesapeake’s $588 million sale of assets to New York hedge fund Global Infrastructure Partners was structured to charge unreasonable fees on royalties, according to a press release from Burns Charest LLP of Dallas, which represents the plaintiffs.

“Chesapeake structured its midstream asset sale and transportation agreements in such a way that the lessors and royalty owners bore unreasonable costs” says attorney Daniel Charest.

“My clients only want a fair price for their royalty production. That’s what this case is about.”

The sale included an exclusive 20-year production commitment related to Chesapeake’s Barnett Shale midstream gathering assets.

The suit also challenges Chesapeake’s transportation fees and net royalty interest calculations.

Chesapeake Energy
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The lawsuit involves oil and gas leases covering more than 5,400 mineral acres and more than 750 producing gas wells in Tarrant, Johnson and Ellis counties.

The case is Addax Mineral Funds, et al.v. Chesapeake Operating, LLC, et al., No. DC-16-07867, in the 95th District Court in Dallas.

Chesapeake Energy is facing other lawsuits alleging royalty underpayments in the Barnett Shale play and other basins in which it operates.

“Chesapeake is defending numerous lawsuits filed by individual royalty owners alleging royalty underpayment with respect to properties in Texas,” the company said in its March 31 10-Q filing with the Securities and Exchange Commission, as reported by Platts.

“These lawsuits, which primarily relate to the Barnett Shale, generally allege that Chesapeake underpaid royalties by making improper deductions and using incorrect production volumes.”

Chesapeake Energy and Total USA have already settled a number of similar lawsuits:

  • $15 million with the Fort Worth City Council in May to settle underpaid royalties for gas produced on city-owned land.
  • $52.5 million to settle a lawsuit witht 13,000 private North Texas landowners to settle similar royalty claims, also in May.
  • Settled a lawsuit with a group of Barnett Shale mineral rights owners led by prominent Texas oil and gas investor Edward Bass last Sept.