Reduced royalty payments by chesap due to "enhancement"?

Although most in our area have not received a nickle in royalties thus far but if in the future might want to be prepared for some tricks by chesapeake again.  Has anyone heard of them reducing your royalty payments due to "enhancement"?  This despite the leases saying that the price is to be at the well head.  Seems as though it is an issue with some landowners.  See article below.

 

Steep declines in Chesapeake Energy royalty payments to landowners

Currently Chesapeake Energy is leading the way in taking the position with Pennsylvania leaseholders it has the right to deduct certain post production costs from a landowner’s royalty check payments if it can show such costs “enhance” the value of the shale gas. The company’s position is the cost of gathering and transporting the gas from well head to the point of entry into the large natural gas hubs makes the gas more valuable thus “enhancing” its value which Chesapeake claims allows it to deduct these moving costs from landowners.

This has left Pennsylvania landowners starching their heads as they understood and insist their royalty payments agreements were represented to them by Chesapeake to be based on the volume of the gas produced at the well head. Some state courts outside of Pennsylvania have declared this practice by Chesapeake to be legal.

Dory Hippauf, who has followed the development of the shale gas industry in the northeast since its early days recently reported that, “Bradford County Commissioners Doug McLinko and Daryl Miller said at the end of their regular meeting on Aug. 2 that they have been fielding concerns from county residents, who have leases with natural gas companies, that mounting post-production costs are eroding their royalties. This, paired with the low market price of natural gas right now, has dropped some monthly payments by landowners by as much as 90 percent.”

Doug Clark of the Clark Law Firm recently stated Chesapeake Energy’s position it’s allowed to make such “enhancement cost” deductions to royalty checks appears to be the exception in the industry. He further stated, “It appears that legal action may ultimately be necessary to obtain a definitive answer as to the proper interpretation of the Market Enhancement language and its impact on landowner royalties. This issue simply involves too much money not to be addressed.”

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Replies to This Discussion

Permalink Reply by Jeffrey L kerr on January 3, 2013 at 2:52pm

Time will tell   don't know if that clause is in contract or not.do not have it with me. know we have a audit and pugh  top lease ad volerum clauses in contract. plus a few more.I will find out and post it for you. thanks  Jeff

Permalink Reply by time will tell on January 3, 2013 at 3:19pm

sounds good , let me know

Permalink Reply by Jeffrey L kerr on March 31, 2013 at 12:46pm

@time will tell we got the lease said no deductions for post production cost gross and it dose have a audit clause.your comment please all so d it said direct or indirect of post production 

Permalink Reply by craig on April 2, 2013 at 1:25am
A family member just received his first check from CHK being part of the Tharpe unit.... There are no deductions taken by CHK.
Permalink Reply by Jason on April 2, 2013 at 2:15am
Craig - can you let us know how much per acre they're receiving.
Permalink Reply by craig on April 2, 2013 at 4:05pm

He said it worked out to an average $52/ acre/month over the 4 months. Just remember on the production numbers that the volume is probably reliant on the availability of the pipeline and a buyer more so than anything else. 

Also, I got clarification on the btu #"s...... 1020 btu's is considered dry gas. One needs to get to 1100 btu's + to start into the wet gas.... but wells can change and so can the fracing process.

Permalink Reply by mlb on April 4, 2013 at 3:14am

Craig, I assume that is for one well correct?  So in theory if they drill 3 more wells on the pad it would be 4x52=208....or they might use one well, until it is dry and then drill the others which would still supply a steady stream of royalites vs a lump sum say if 6 wells were drilled at once and were at max capacity.  I think this is the way it will go.  Chesapeake is mostly drilling one well to HBP from what I know so on the plus side when they get to producing you won't be done with royalties overnight.

Permalink Reply by Gary on April 4, 2013 at 7:30am

Listen to Doug Clarks radio show he is hot on this subject...

Permalink Reply by Jason on April 4, 2013 at 7:34am
Gary - can you provide a channel and time for that radio show?
He's unfamiliar.
Permalink Reply by mike on April 4, 2013 at 8:00am

He is on this page on right  

"All Things Marcellus with Attorney Doug Clark"

on 94.3 FM "The Talker" WTRW (Scranton PA)

Saturdays @12-1 PM Eastern Time

  •     You can listen to the radio show anywhere you want, by subscribing to the Podcast in iTunes using the button below. This way, your iTunes will get notification of a new episode automatically, and (optionally) syncs them to your PC, Mac, iPod, iPhone, or iPad. That means that you can listen to our new episodes instantly
Permalink Reply by Gary on April 4, 2013 at 12:56pm
Go to the Doug Clark law firm website and click on radio shows you can pick anything you want

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