Posted on August 31, 2012 at 6:55 am by Bloomberg
Donna Thornton made sure to include a no-cost provision in her contract with Chesapeake Energy Corp. (CHK) that let the driller harvest natural gas beneath 2.5 acres of her property in Louisiana.
Thinking she had excluded production and marketing expenses and would therefore secure higher royalty payments, the Texas accountant said she was shocked when she confirmed in July that the second-biggest U.S. gas producer was passing costs on to her. For Thornton and thousands more owners of mineral rights in the U.S., “no-costs” in drilling leases has taken on new meaning.
As gas prices were heading toward a 10-year low in April, Chesapeake began reinterpreting in its favor thousands of contracts with landowners from Pennsylvania to Texas that own the 1 trillion cubic feet of gas the company produced last year, according to interviews and documents reviewed by Bloomberg. Chesapeake, arguing that other contract language allows for cost deductions, is fighting more than a dozen lawsuits.
“I don’t want to sound like I’m a bitter, disgruntled royalty owner, but this isn’t fair,” Thornton said. “Don’t do sneaky tricks. If it belongs to the royalty owners, it belongs to the royalty owners.”
While Thornton hasn’t sued, saying she is dissuaded by the potential hassle and cost, other property owners have taken Oklahoma City-based Chesapeake to court in states including Texas, Arkansas, Oklahoma, Louisiana and Kansas alleging underpayment of royalties. The lawsuits include at least eight cases brought so far this year, two of which were filed as class actions seeking to represent multiple royalty owners
Rockpick says read on… it gets even better!