Texas landowners have filed a lawsuit against Chesapeake Energy over reduced royalty payments; unlike similar lawsuits, this one is seeking class action status. Charles and Robert Warren joined with a Johnson County couple to file the lawsuit in U.S. District Court in Dallas.
Beginning in August 2011, Chesapeake began deducting “post-production costs” from the prices for natural gas used to determine payments to royalty owners. These costs include expenses such as compressing and treating natural gas to prepare it for sale. According to Chesapeake, the company previously had the legal right to charge for those costs but had chosen not to do so. At the time, the company stated that the costs would not be deducted if a royalty owner’s lease prohibited such charges. The Warrens claim that although their lease did prohibit charging for post-production costs, they were charged anyway.
Post production costs can be about 80 cents to $1 per 1,000 cubic feet (mcf) depending on what must be done to the gas, which is significant when natural gas prices drop to around $2 per mcf, as they did in 2012. According to the Warrens, by March 2012 they were being paid as low as 42.4 cents per mcf for the natural gas Chesapeake extracted from their eight wells, and the difference in payments ran to six figures.
Several other lawsuits have been filed by Texas landowners against Chesapeake over the reduced royalty payments. The Warrens’ suit seeks class action status, a rarity for this type of lawsuit.
Chesapeake has scrambled to adjust to falling gas prices, which reached $1.90 per mcf by April 2012, a 10-year low.