Chesapeake Energy settles Pennsylvania inquiry, suits for nearly $12 million
Chesapeake Energy agreed to pay nearly $12 million to settle an investigation into its Pennsylvania leasing activities and related class-action lawsuits.
The company was accused by Pennsylvania Attorney General Josh Shapiro in 2015 of misleading mineral owners on leases as early as 2012.
The issue involved how gathering and processing fees incurred by Chesapeake impacted mineral owners’ royalties.
The agreement between Shapiro’s office and Chesapeake was announced by the Pennsylvania Attorney General Monday.
Later that same day, Chesapeake officials confirmed settlements of the class action suits worth about $6.25 million. In 2018, they had agreed to settlements for far more, before those were held up by an objection filed by Shapiro.
Ending the attorney general’s probe is costing the company another $5.65 million.
The AG's deal
In a news conference Shapiro held Monday, Shapiro and his staff reported the deal will:
• Stop Chesapeake from offering leases to mineral owners that contain “market enhancement” clauses or “ready for sale or use” clauses.
• Hire an ombudsman to investigate, review and respond to individual claims selected by Shapiro and Chesapeake.
• Allow Shapiro’s office to access Chesapeake’s books and records to ensure compliance with the settlement agreement.
• Require Chesapeake to provide clear, transparent pricing information on their website, as well as an annual report to Pennsylvania’s Office of the Attorney General detailing royalty payments.
• To pay landowners $5.3 million in restitution and $350,000 to the attorney general's office for its costs and fees.
“The bottom line here is that this settlement will end the abuse from Chesapeake and allow landowners to take a new lease with no deductions,” Shapiro said. “This case is about standing up to powerful interests when they try to take advantage of people. And it’s about my duty, as the attorney general of this commonwealth, to uphold the law and apply it.”
Shapiro’s office initially filed its complaint against Chesapeake at the end of 2015. However, the complaint dealt with leases executed as early as 2012.
His office amended the complaint in 2016 to add Anadarko Petroleum (Anadarko) as a defendant, accusing the two companies of working together to avoid bidding up each other's costs on individual deals.
The complaint brought against Anadarko is awaiting a decision by the Pennsylvania Supreme Court, Shapiro said Monday.
The agreement between the attorney general’s office and Chesapeake must be approved by the judge that oversaw Chesapeake’s bankruptcy case.
Gordon Pennoyer, a spokesman for Chesapeake Energy, said Monday the company welcomes the resolution of both the attorney general’s probe and the other cases
“Chesapeake greatly values its relationships with Pennsylvania royalty owners and is pleased to have reached a global resolution with them and the Attorney General that addresses royalty owners’ concerns. The Company looks forward to working collaboratively with Pennsylvania royalty owners, going forward,” he said.
Not a unique problem
Numerous cases brought by individual minerals owners and attorneys general involving these types of issues have been filed across much of the nation since the shale boom began a decade ago.
They tend to center on the language of royalty leases, which can be detailed and complicated and vary from operator to operator and lease to lease.
Typically, disputes focus on treatment costs and other charges the oil and natural gas producer pass on to royalty owners through deductions from their royalty payments. And in today’s complicated world involving horizontal drilling, the issue of how leases are structured and what they mean matter to both energy companies and leaseholders.
Some leases are limited to specific rock layers, while others encompass everything below the surface. Some specify royalties are to be paid before deducting transportation and other costs, while others set out that royalties only will be paid after those costs are removed.
If the leases don’t clearly state what a company can deduct related to costs for “producing, gathering, storing, separating, treating or dehydrating" oil and natural gas, problems can emerge.
Confusing leases can leave mineral owners thinking (rightly or wrongly) they are being cheated out of what they should be getting paid, said Lucas McGuire, a certified professional lease title analyst who is president of Endatus.
Endatus is a business that works with both mineral rights owners as well as oil and gas operators that write leases.
“Anywhere there is drilling, there are issues with this," McGuire said.
Business writer Jack Money covers Oklahoma’s energy and agricultural beats for the newspaper and Oklahoman.com. Contact him at email@example.com. Please support his work and that of other Oklahoman journalists by purchasing a subscription today at oklahoman.com/subscribe.