Chesapeake Reaches Settlement with Large Class of Pa. Landowners in Royalty Dispute

Chesapeake Reaches Settlement with Large Class of Pa. Landowners in Royalty Dispute

Chesapeake Energy Corp. has reached a $7.75 million settlement agreement with about two-thirds of its Pennsylvania natural gas royalty owners who claimed that the company inflated transportation and marketing costs, often leaving them with paltry payments for their gas.

The agreement applies to about 10,000 early Chesapeake leases located mainly in northeastern Pennsylvania that do not have so-called market enhancement clauses, which limited the kinds of deductions the company could take from a landowner’s share of gas sales.

It aims to resolve two class-action lawsuits filed in U.S. District Court for the Middle District of Pennsylvania in 2014 known as Brown v. Access Midstream Partners and The Suessenbach Family Limited Partnership v. Access Midstream Partners.

Access Midstream was once Chesapeake’s pipeline subsidiary and is now owned by Tulsa, Okla.-based Williams.

If the settlement is approved by a judge, royalty owners who don’t opt out of the agreement will get a proportional share of some of the past costs that Chesapeake subtracted from royalty payments and the ability to choose from two options for how royalties will be paid going forward.

They can either continue receiving royalties as they do now — with Chesapeake selling the gas in other markets and deducting the landowner’s share of the costs of processing and shipping it there — or receive royalties based on a northern Pennsylvania regional index price, without any deductions.

The $7.75 million settlement represents about 8 percent of the past deductions taken from the landowners’ royalties.

Chesapeake denies that its costs were inflated or that its royalty payment practices were improper.

In a statement, Chesapeake spokesman Gordon Pennoyer said the company is pleased to have reached the agreement, which he said provides “the unprecedented opportunity for our owners to alter the terms of their lease and elect their royalty formula moving forward.”

Michael Donovan, one of the attorneys representing the landowners in the class, said the agreement gives landowners more control over how their royalties are calculated and pays them now rather than years from now when past deductions might be recovered through litigation.

“We think that the settlement is a fantastic deal for the lessors,” he said.

The agreement contains a contingency clause allowing Chesapeake to decide to pull out of the settlement if the Pennsylvania attorney general does not agree that the deal resolves all of the claims of unfair trade practices that the state brought on behalf of the class members in a related case in Bradford County court.

The attorney general has declined to endorse similar terms in the past.

“The private class-action settlement does not impact our case at all,” Joe Grace, a spokesman for the attorney general’s office, said. “Our claims against these energy companies are active and ongoing, and they are intended to protect all Pennsylvanians against this kind of corporate misconduct, not just one group of individuals in one case.”