Chesapeake Energy reaches settlement amid bankruptcy

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TUNKHANNOCK, WYOMING COUNTY (WBRE/WYOU-TV) Chesapeake Energy, the country’s second-largest natural gas producer, has reached a settlement with the Pennsylvania Office of Attorney General, ending a lawsuit over inadequate royalty payments.

Attorney General Josh Shapiro made a stop in Wyoming County on Monday to make the announcement. Shapiro says that at times, landowners leasing to Chesapeake were billed or royalties were withheld to pay for the company’s gas gathering, transportation and processing costs.

“Pennsylvanians were told by this company that natural gas production would be lucrative for them. It did not make near what they were promised or sometimes did not make any money at all,” Shapiro said.

The settlement will provide better royalties for landowners that lease to Chesapeake in the future, as well as improved protections and $5.3 million in restitution for those affected.

Investigations into Chesapeake began in 2015, when the Office of Attorney General filed a complaint alleging the company “engaged in unfair and deceptive business practices in securing natural gas leases and in its improper payment of royalties to Pennsylvania landowners.” Anadarko Petroleum was added as a defendant to the complaint in 2016. The complaint alleged that both companies “allocated markets to secure leases and deprived landowners of the benefit of competition for securing leases.”

The initial suit would have had the natural gas company reimburse landowners.

“Landowners will not see all of the money owed to them because Chesapeake filed for [Chapter 11] bankruptcy,” Shapiro said.

The defendants appealed to the Pennsylvania Supreme Court with oral arguments concluding in May 2020. That year in June, Chesapeake filed for bankruptcy and the court stayed the earlier decision, stopping the Attorney General’s case from moving forward.

However, the settlement will insure that the company will pay $5.3 million dollars to landowners in one-time payments.

Also in the settlement, leaseholders will have the opportunity to keep or change how monthly royalty checks are calculated.

“Ongoing benefits to royalty owners as production continues into the future so my optimistic hope is this will provide welcome relief for all of us in the future,” Bob Sher, president of PA Oil and Gas Landowners Alliance said.

Depending on your lease agreement with the company, you can get around $700 or $367. Those with a “market enhance clause” or “MEC Lease” will receive around $700. Others will get around $370.

Landowners with MEC and Ready for Sale or Use Leases can choose going forward to be paid higher of an “in-basin price,” which is based on local index prices with no deductions, or the “NetBack Price,” which is the price Chesapeake receives for its production month sales to third parties minus a proportionate share of the “Post-production” costs that Chesapeake insure. 

Option 1: In-Basin Price, No deductions. Option 2: NetBack Price, deductions. 

If landowners do not choose either option, the landowners will be paid at its current agreement making it a third option. 

It will take 6-8 months to receive your owed money of up to $700 and sign a new royalty calculation.

“The bottom line here is that this settlement will end the abuse from Chesapeake and allow landowners to take a new lease with no deductions,” said Attorney General Josh Shapiro in a statement. “This case is about standing up to powerful interests when they try to take advantage of people. And it’s about my duty, as the Attorney General of this Commonwealth, to uphold the law and apply it.”

Under the settlement, Chesapeake Energy must:

  • Provide an opportunity to Pennsylvania landowners with Chesapeake leases to obtain better payment of royalties going forward;
  • Stop offering leases that contain “market enhancement” clauses or “ready for sale or use” clauses to Pennsylvania landowners;
  • Hire an Ombudsman to investigate individual claims, selected by AG Shapiro and Chesapeake, to review and respond to landowner complaints;
  • Allow the Pennsylvania OAG access to Chesapeake’s books and records to ensure compliance with the settlement agreement;
  • Provide clear, transparent pricing information on their website, as well as an annual report to the Pennsylvania OAG detailing royalty payments; and
  • Pay landowners $5.3 million in restitution and $350,000 to the OAG towards its costs and fees. 

The settlement has to be approved by the US Bankruptcy Court for the Southern District of Texas, Houston Division before it can be effective. 

Shapiro says he is confident it will be approved. 

“For years, Chesapeake tried to publicly pressure my office into settling on their terms. That didn’t happen,” said Shapiro. “They tried to argue that our court action was holding up settlements in a separate, private class-action lawsuit filed directly by landowners. None of this was necessary; they didn’t have to act like this, and the fact of the matter, their conduct exposed their disregard and mistreatment of folks here in Northeastern Pennsylvania and in the Northern Tier.”

Eyewitness News reached out to Chesapeake for comment. A statement from the company reads:

“Chesapeake greatly values its relationships with Pennsylvania royalty owners and is pleased to have reached a global resolution with them and the Attorney General that addresses royalty owners’ concerns. The Company looks forward to working collaboratively with Pennsylvania royalty owners going forward. The global agreement is subject to Bankruptcy Court approval.”

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