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Permalink Reply by Shower Bath on August 24, 2014 at 10:10am

Just came across this today on the gohaynesville.com site. It appears Chesapeake has settled one of their many law suites regarding landowner royalties. See the link...

http://www.gohaynesvilleshale.com/forum/topics/arlington-approves-g...

SB

Permalink Reply by Shower Bath on August 24, 2014 at 10:31am

Couldn't get this site to edit the above properly. Try this link for the story on Arlington TX vs Chesapeake.

http://www.star-telegram.com/2014/08/19/6054582/arlinton-approves-g...

SB

Permalink Reply by 0ym9x5ag7ury2 on August 24, 2014 at 8:33pm

I can see into the future by reading the information below from the article provided.

Can knowing the future make it possible to change the future?

We shall see!!

‘Engaged in a scheme’

Arlington’s lawsuit made claims that are repeated in other litigation against Chesapeake — that the company underpays royalties by basing them on proceeds from sales to affiliates or other “sham transactions” and after production costs had been taken out.

Arlington said its lease agreements “prohibit or significantly limit deductions” such as transportation and production costs and taxes, and “provide for cost-free royalties.”

But even after raising concerns about underpayments and improper cost deductions. the city said, Chesapeake continued to “engage in a scheme of affiliated transactions aimed at hiding or embedding impermissible cost deductions and suppressing the royalties it pays to the city.”

It also said the charges deducted from the royalty payments were “excessive and unreasonable in instances where only limited deductions are authorized.” The lawsuit also stated that the deductions were not apparent from information provided to the city.

But Chesapeake has argued that the procedures it uses to drill, market and sell the gas are acceptable and done within the letter of the law and the leases. They also said royalties in the Arlington case, and others, are to be based on the price of the gas at the wellhead.

But after that sale takes place, an affiliate, Chesapeake Energy Marketing, transports the gas through a gathering system downstream through pipelines to the next buyer to maximize the price, records show.

What Chesapeake Energy Marketing eventually pays is what is known as the “weighted average sales price” that it gets from an unaffiliated third-party less the actual post-production costs incurred in moving the gas.

Since 2006, Chesapeake has paid Arlington more than $12 million in royalties, Pennoyer said.

While some argue that their leases prohibit any post-production costs from being deducted, the 5th U.S. Circuit Court of Appeals in two cases stemming from disputes over royalties in Tarrant and Johnson counties said it is allowed. The court also stressed that each lease is different.

Other settlements

Arlington’s deal mirrors one that Chesapeake reached with Dallas/Fort Worth Airport in 2012 for $5 million. That deal also established a formula for royalty payments.

Chesapeake also quietly settled with the Tarrant Regional Water District earlier this year when it agreed to pay the district $1.8 million for royalties on 100 leases from January 2008 through October 2011. After conducting an audit, the water district challenged the deduction of post-production costs.

The district recently approved another forensic audit to double-check payments from Chesapeake.

“It is a pattern to improperly pay the landowners,” said Jim Lane, a water board member, who described what Chesapeake does as a “numbers game.”

“We assumed the oil and gas company would follow their own rules, and it is a shame that a company as big as Chesapeake is not,” he said.

Read more here: http://www.star-telegram.com/2014/08/19/6054582/arlington-approves-...