Corbett challenges royalties of gas producer Chesapeake Energy

February 14, 2014 11:42 PM

By Karen Langley / Post-Gazette Harrisburg Bureau

HARRISBURG -- Gov. Tom Corbett and a state senator from northeastern Pennsylvania are calling for an investigation of how Chesapeake Energy deducts costs from natural gas royalty payments owed to landowners.

In a letter Thursday to Chesapeake CEO Robert Lawler, Mr. Corbett said he was disappointed that complaints of Pennsylvania landowners had not been heeded. He went on to ask state Attorney General Kathleen Kane to "examine this issue" and promised the support of his administration.

"As you know, for some time I have received complaints from my constituents and your leaseholders regarding practices of Chesapeake Energy which strike many as unfair and perhaps illegal," Mr. Corbett wrote to Mr. Lawler.

"Deductions of post-production costs, in a manner which seemingly few if any other operators in Pennsylvania utilize, has caused a significant erosion of the trust and goodwill the natural gas industry has established with Pennsylvania leaseholders and local communities."

A spokesman for Chesapeake declined to comment.

In October, the Pittsburgh Post-Gazette reported that Chesapeake Energy was deducting "impact fee" payments out of oil and gas lease royalties.

The state impact fee is the tax that drillers pay to the state, meant to help counties and towns pay for, among other things, repairing road and bridge damage caused by the heavy gas trucks, preserving water supplies, and repairing water and sewer systems.

But Act 13, the state's major oil and gas law, bars such fees from being deducted from royalty payments.

Ms. Kane was also asked to look into the matter by state Sen. Gene Yaw, R-Lycoming, who wrote in a letter that his office had received complaints about Chesapeake's practices from farmers, accountants and other landowners. The primary complaint, he wrote, involved the deduction of post-production costs.

"One landowner related that the deductions were greater than the royalty payment, so it is actually costing the landowner money to have gas extracted from the property," he wrote.

Joseph Peters, a spokesman for Ms. Kane, said attorneys are reviewing the issue to determine if the office has jurisdiction. If so, he said, it would examine whether involvement by the attorney general would affect any private lawsuits.

In his letter, Mr. Corbett said he supports bills in the General Assembly "aimed at better protecting the rights of our landowners, particularly with respect to fair treatment of royalty payments."

Mr. Yaw has introduced a package of legislation aimed at oil and gas leases. One bill would allow landowners to inspect gas company records to verify payments. Another would ban a gas company from terminating a lease in retaliation for an owner questioning the accuracy of royalty payments.

Karen Langley: klangley@post-gazette.com.



Read more: http://www.post-gazette.com/local/marcellusshale/2014/02/15/Corbett...

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Replies to This Discussion

Permalink Reply by JK on February 25, 2014 at 8:52am

Well now this sounds good if it really happens.

All the attorneys have to do is look at the Class Action suits in WV to see what Chesapeake does to subtract their hidden costs from royalties.

CHK is doing the same thing again in WV and it is currently being discovered!

CHK is hoping to be bought out before this hits.

Oh, and it's going to be a field day for all the audits folks can do without having to pay so much for it to be done.

No, there are no way to check daily productions as it is done straight to the 'office' electronically.

 

Permalink Reply by Frank Walker on February 25, 2014 at 9:48am

Chesapeake Energy is to the energy industry what Bernie Madoff was to the investment community.  We can only hope culpable CHK potentates soon meet the same fate as Bernie.

Permalink Reply by craig on February 25, 2014 at 10:21am

That comparison is just a tad over the top to me. Enron consisted of many more facets affecting things... and then add on all the stock owners who got greedy and held on...most of those folks deserved to lose it all. 

Permalink Reply by JK on February 25, 2014 at 12:25pm

That comparison is accurate just measured differently.

If you look at the payouts in the multiple CHK Class Actions the ratios are the same.

For what was paid was a drop in the bucket for the real losses.

Just like Murdoff's victims, they will never be repaid.

None of us deserves to lose it all.

We trusted because we do that.

That cost us dearly in the end.

 

Permalink Reply by Dan on February 26, 2014 at 1:58am
Craig, wasn't Enron employees 401's funded with Enron stock which they could not sell? Real greedy going to work each day.
Permalink Reply by Paul Martinelli on February 26, 2014 at 2:29am

Yes....

Most Enron 401ks  were heavy in Enron Stock....then we were locked out and couldn't sell  for a period of time....by then it was all over........

PS....tell me how greedy all the employees of the the pipeline companies that Enron bought were.  These companies had fully funded pensions, Enron bought them, and then they lost everything......

Permalink Reply by Dan on February 26, 2014 at 2:47am
I'm sure EOG appreciates all those greedy stock holder employees holding on to their Enron stock so EOG could spin off into a solid profitable endeavor.
Permalink Reply by Paul Martinelli on February 26, 2014 at 2:52am

Dan....my 401k Enron stock holdings  were locked...and I sat and watched it plunge from $80-90 level to under $10.

Greedy or not....being locked out of selling is/was the issue.

I feel sorry not for myself....but the  Pipeline employees that had 25-30+ years in....and then loss their pensions.

Permalink Reply by Dan on February 26, 2014 at 3:18am
Paul,
I agree 100%. I am being sarcastic. I think it is a travesty that often times the retirement plan is the 1st thing that is shed when times are tough. At the very least the employees and retirees should be forefront in discussions and negotiations when a large company is sinking. Many times when companies fail, the employees are the 1st to be thrown on the scrap pile. It is hard to imagine that with the myriad of financial advisors and accountants that we have in private and public settings, no one can forecast the promises made and given to employees can't be sustained. It's even popular today to beat up the public workers. It seems that it's a common business plan today to grind as much profit upfront and when the company is frail just chop it up and keep the fillet.
Permalink Reply by craig on February 26, 2014 at 3:18am

I do feel for folks that were locked out, and the many others that got screwed. However CHK pales in comparison with the numbers of folks affected by Enron.

Permalink Reply by craig on February 26, 2014 at 3:15am

Did they have to own Enron stock? Nothing like putting your eggs all in the same basket heh?

You are wrong, only a percentage was locked out at the time it was ready to blow up.

Yes, there were plenty of folks hurt though.

Permalink Reply by Paul Martinelli on February 26, 2014 at 3:22am

All my eggs were not one basket.

 

And for a period of time....changes to 401  was locked down for all.

 

Anyhow.....this is off the subject.....nuff said.

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