Federal lawsuit alleges company is significantly underpaying royalties
A new lawsuit accuses Encino Energy and its affiliates of underpaying oil and natural gas royalties in Ohio.
Attorneys for landowners in Carroll and Columbiana counties filed the complaint Friday in U.S. District Court for the Northern District of Ohio.
Encino Energy, Encino Acquisition Partner Holdings, EAP Ohio and EAP Operating are defendants in the proposed class-action lawsuit. The case is assigned to Judge Benita Y. Pearson in Youngstown.
An Encino spokeswoman said transparency and fair treatment were the company’s top priorities, and it shares detailed information about royalty calculations with all of its partners.
The lawsuit concerns leases landowners signed with Ohio Buckeye Energy or Chesapeake Energy from 2010 through 2012. Ohio Buckeye Energy later became part of Chesapeake.
Last October, Encino Acquisition Partners bought Chesapeake’s Utica holdings in Ohio for $2 billion. EAP is a partnership between the Canada Pension Plan Investment Board and Encino Energy, a private oil and gas company based in Houston.
EAP’s purchase included 900,000 acres and approximately 900 wells, with related equipment and property. Encino Energy’s Utica office is in Louisville.
After the purchase, the Encino defendants began to significantly underpay royalties to landowners, according to the lawsuit.
William G. Williams, an attorney for the landowners, said his clients initially couldn’t wait for Encino to take over because Chesapeake had been making large deductions from their royalties, a practice that is the subject of another lawsuit.
High expectations changed to despair and disappointment when the landowners got their first Encino royalty checks this summer, Williams said. The payments were anywhere from 50 to 90 percent less than what Chesapeake had been paying.
“The drop has been dramatic,” said Williams, an attorney with Krugliak, Wilkins, Griffiths & Dougherty Co. of Jackson Township, which is representing about 140 landowners in the royalty dispute.
The landowners named in the lawsuit — Zehentbauer Family Land LP and Hanover Farms LP, which own land in Columbiana County, and Evelyn Frances Young, a United Kingdom resident who owns land in Carroll County — were part of large landowner blocs that negotiated standard leases with drillers with help from the Krugliak law firm.
The leases required the company to pay a royalty to landowners based on the gross proceeds from the sale of oil and natural gas produced by the wells. The only deductions allowed were for government taxes and fees, according to the lawsuit.
But the Encino defendants have been deducting fees for gathering, processing, dehydrating, transporting, marketing, compression and other activities, according the lawsuit, which alleges damages in excess of $5 million.
The Krugliak law firm and Murray and Murray Co. of Sandusky are representing the landowners.
The same plaintiffs and attorneys filed a similar royalty lawsuit in 2015 against a subsidiary of Chesapeake Energy and its affiliates. That case is pending before Pearson in federal court.
In an email, Encino spokeswoman Jackie Stewart stressed the disputed leases didn’t originate with Encino.
“These leases contain provisions that have been under review by Ohio federal courts for a significant amount of time prior to our arrival in Ohio,” she wrote. “We are awaiting the courts’ ruling on these provisions before these matters can be clearly resolved.”
She also noted the natural gas price is down 20 percent, while ethane and propane are worth almost half what they were a year ago.
“The changes seen by landowners in royalty payments have largely been driven by changes in production in some cases, and in significantly lower commodity prices in all cases,” she wrote.
She encouraged royalty owners with questions about their leases or royalty calculations to contact the company.
There are other landowner groups being formed; I know of two in Harrison County. Those will likely go to the state courts. This was just the first to drop against Encino. There will likely be many. Here in Harrison County, Encino is taking out 90% or more deductions on royalties. As far as I have heard, they are doing this to all landowners, irregardless if they have a gross or net lease. They are Chesapeake on steriods.
Thanks for the info, Joe. Our monthly royalty checks have dropped down to zero. My spouses relatives both live in Harrison county, and are co-owners of our land there. I'd like to direct them to join one of these landowner groups, if possible. Do you know of anyone we could contact?
I don't believe that the forum's rules allow me to post the names of attorneys. I sent you a friend request; approve it and I'll message you.
Joe and Dan-I'm also in Harrison County (don't live there-its our farm) and our royalty went to zero in 5 months since Encino took over. I would also like to know a group for representation. Let me know if you can get me a name to join. Thanks.
I sent you a friend request.
That's certainly part of the issue. How many times have we heard here in GMS...."make sure you consult an attorney". How many landowners groups had legal representation that gave their blessing for Chesapeake's Market Enhancement clause? One time when driller wanted to have surface use agreement will me the presented me their boilerplate form and I added back to them 3 more pages. They seemed like the clausesvi added were all foreign and weird but then I told them they were the same provisions they have in their lease with a State out West.
Dan, MAGA! How can you be so blind to the facts and evidence far more supporting a deep state coup than anything else the Dems and media want you to believe by regurgitating baseless claims of corruption against the Prez ? Go ahead keep voting for more pay to play corrupt politicians and see how your royalty checks look then
Inchworm, The Russians and Saudis have been been financing extreme left wing anti fossil fuel propaganda for years giving groups money and even funding the movies that portray crooked landmen and energy companies. They also have been infiltrating and lobbying our far right republicans to back their overseas energy companies to keep us dependent on them. Your comrades have you standing and cheering for them so you don’t even notice their hand in your pocket. Other countries are building out their energy and export infrastructure while half our country protests fracking and pipelines and the other half scream MAGA, Make America Go Away. Putin has been training puppets here for a long time but his most loved seems to be Trump. You talk about being blind. Our National debt has increased exponentially the last few years and we are days from another government shutdown needing another big increase. Our infrastructure is falling apart, small farm bankruptcy is at an all time high, manufacturing jobs are near recession and the coal miners are still out of work and the Trump administration just decreased their chances of getting Black Lung benefits and doesn’t want to use the federal program that will guarantee them getting a fraction of their retirement. So...other then fracturing memes and shouting slogans what do you see happening that is so great? For the record my income went up dramatically with Trumps new tax program but most Americans did not. My Grandchildren will be paying the bill for my increased wealth.
You made my day Old Timer with your comparing politicians with "Those big black critters on your farm. Actually "those big black critters" are less of a threat then the politicians are!
Dan, Who are you going to vote for in the next presidential election?
That’s a tough one.
If you know of a candidate that can turn our social welfare system into a system that gives a hand up instead of a handout and ends the corporate welfare of subsidies, tariffs and tax breaks. Instead sending those tax dollars into programs and agencies that invest in knowledge and innovation for all farmers, entrepreneurs and business.
Someone that can come up with a basic health system for all that allows one to pay extra for higher levels of coverage. This would include all members of all three branches of government getting the basic plan also. No more lifelong free gold coverage for one term of service. Any free extras would only go to those that have been injured in the line of duty in the military, law enforcement and any other protective services.
Someone that stands up for science, math and trade skills throughout public education and invites business into the schools to help provide extra skills to fill the current and future job openings.
Someone that understands and follows our Constitution for all citizens and advocates the Amendment process only if a majority sees a needed change.
Someone that understands that immigration should be used to bring in hardworking, educated and skilled workers providing a level playing field for a pathway to citizenship not based on any discrimination our constitution and laws currently prohibit. And if properly vetted sometimes we have to help the less fortunate escaping horrible conditions.
Someone that understands we all have different opinions and goals but tries to unite our country to at least accomplish our common goals and provide a climate that lends itself to talk and negotiation to discuss everything else without all the hatred and name calling for the alleged “other side”.
Someone that slowly raises the effective minimum wage to a fair wage that hardworking folks don’t have to work 2 1/2” jobs to provide for their families.
And of coarse someone that promotes the safe and fair extraction of our O&G giving us low cost clean energy independence from other countries but especially our adversaries and frenemies so our children can quit fighting and dying to protect foreign energy.
Many more things I would like in a candidate but if you know of one that fits most of these qualifications I’m there.
Cheeto Banditto is more interested in profiting from Ukrainian, Russian and Saudi energy at the moment and selling the rights from federal holdings for future profit than promoting what is already being harvested that could help us common landowners. His suit might be turning the same color as his face which would put him out of play and he has all ready started throwing Pence under the bus. If they both turn from red to orange or even the pre 80’s yellow, might be a good time to have another choice for a candidate.
If Pence is on the ticket and they both get impeached before or after 2020, I wonder how many readers here know who becomes the next POTUS. He is throwing Pence under the bus to invoke fear thru the party leaders to keep his back.
I’m all for leaving my O&G in the ground until a more favorable time. I can’t see any good for it otherwise in the near future and it certainly doesn’t have much value now.
im more worried about my country at the moment than my minerals.