An effort is underway to bring class action arbitration against Pennsylvania’s biggest gas driller –Chesapeake Energy—over allegations the company is underpaying royalties.
About 60 people turned out to the Towanda Fire Department Wednesday night to hear a pitch from a group of attorneys seeking to bring the case.
Chesapeake leaseholders in particular have been alleging the company is underpaying royalties by deducting the costs of moving the gas from the well to the market, for things like pipelines and compressor stations.
Scranton-area lawyer Doug Clark is heading up the group of attorneys. He says while some leases do allow for these types of deductions, other contracts explicitly prohibit the practice.
“We’re seeking to identify these landowners and let them know they have these rights and pursue claims on their behalf,” says Clark.
Clark is working with another Scranton lawyer and two New York City-based attorneys to file class action arbitration against Chesapeake. Clark says many leases require disputes to be dealt with through arbitration and not in a traditional courtroom.
He says his group has already started the process and is looking for more clients.
David Moon was among the landowners in the audience. He owns about 200 acres in New Albany.
Moon says three of the four companies involved in his property are taking deductions out of his royalty payments, including Chesapeake. He’s anxious for some legal action on the issue.
“[The deductions are] extremely substantial when you start adding it up,” he says, “I don’t believe these companies are entitled to it.”
Under Pennsylvania law, an oil and gas lease must provide a minimum 12.5 percent royalty in order for the contract to be valid.However, in a unanimous 2010 decision, the State Supreme Court held that since the word royalty was not defined in the law, the industry could rely on its own interpretation, which allowed for subtracting the costs of moving the gas to market.
The state legislature recently passed a law requiring more transparency from companies about royalty check deductions.
A spokesman for Chesapeake did not respond to a request for comment.