Royalty group urges caution as Chesapeake offers new $11M settlement

• Katie Colaneri
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  Katie Colaneri is a reporter for StateImpact Pennsylvania and WHYY in Philadelphia covering energy and the environment. Before joining StateImpact, Katie worked as an investigative and enterprise reporter at WBGO in Newark, New Jersey. She covered some of New Jersey's biggest stories including the devastation and aftermath of Hurricane Sandy in 2012 and Tropical Storm Irene in 2011, as well as the day-to-day triumphs and struggles to revitalize state's largest city. A native of New Jersey with roots in South Central Pennsylvania, Katie holds a bachelor's degree from Wellesley College.

One of the state’s biggest gas drillers, Chesapeake Energy has agreed to increase the amount it’s willing to pay to settle a class action lawsuit accusing the company of cheating landowners out of royalty money. Chesapeake has upped its offer to $11 million dollars after a federal judge threw out the company’s original agreement of $7.5 million.
Chesapeake is only increasing the amount it will pay back landowners who say the company has been improperly withholding royalty money for “post-production costs.” (Deducting the cost of moving gas from the well to the market is legal, but some leases prohibit the practice.) However, the deal would still allow the company to withhold money on royalty checks going forward.
More from the Scranton Times-Tribune:

The revised agreement would reimburse leaseholders 55 percent of post-production costs taken up until June 1, 2014. The original agreement set the cut off date at Sept. 1, 2013. The additional months will add roughly $3.5 million to the payout to class members.
Leaseholders, who currently pay 100 percent of post-production costs, will continue to pay a portion of those costs. The percentage will be reduced to 66 percent, however. The original agreement had leaseholders paying 72.5 percent of the costs. Leaseholders will continue to pay 100 percent of costs to related to transportation of natural gas through pipelines.

A Chesapeake spokesman told the Times-Tribune it is a “fair and reasonable” agreement.

The settlement could apply to any royalty owner with a Chesapeake lease that prohibits deductions for post-production costs. That could amount to thousands of people who may not realize they can opt out of the deal, says Jackie Root, President of the Pennsylvania Chapter of the National Association of Royalty Owners.
“If they throw that in the garbage, they’re in,” she says. “It’s an opt-out settlement.”
Root urges royalty owners to consider the deal carefully and if necessary, to consult an attorney specializing in oil and gas leasing issues.
“It has the potential to have such a huge impact for them, for the future owners,” she says. “It might be the next person that buys the property. It might be their children, grandchildren.”
The settlement will still need to be approved by a federal judge. In the meantime, Chesapeake is being investigated by the state and federal government for its royalty practices.

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