Brief on Post Production Costs in Ohio
Greetings. The Ohio Supreme Court has accepted a question of state law from a federal judge in Ohio in the gas royalty case of Lutz v. Chesapeake Appalachia LLC. The question is whether post production costs may be deducted from gas royalties when the lease does not expressly address how they are to be paid. Gas producing states are fairly evenly split on this issue. Attached for your information is the 27 page brief that I wrote on behalf of the landowners in the Lutz case. My Ohio co-counsel filed this brief yesterday in the Ohio Supreme Court.
Best regards to all,
Robert C. Sanders.
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Permalink Reply by Robert Sanders on
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No Cliff Notes available, Eric. The short version (if you don't want to wade through the brief) is this:
We argue that gas producers sign a lease they make an implied covenant (promise) to market the gas -- which means they have to pay all costs of putting the gas in marketable condition and taking it to market -- unless the lease states that the landowner will share a portion of those costs As we see it, the gas producer must pay 100% of the costs of gathering, compression, dehydration, processing, interstate transportation, etc. unless the lease says otherwise. Most leases today say that the landowner will pay his or her share (usually 1/8) of those costs, but older leases are silent on how the costs are to be paid. Our position is that under those silent leases the gas producer pays all the costs, even those incurred in connection with the landowner's 1/8 share of the gas.
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Permalink Reply by G.H. on -
I like your position. :) Thanks for posting. Will check out the brief when I have some time.
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Robert,
You have presented a well written case. Those landowners who have been paid a “Shorted” royalty should benefit from your work if there are any Honorable Men and Women left to hear your case that haven’t fallen under the influence of Chesapeake’s Corporate Greed.
There is another issue affecting the majority of Ohio Landowners and the Nations Landowners. Chesapeake is paying US landowners a monthly fee that cannot be classified as a Royalty.
Any intelligent person who analyzes the attached Spreadsheet from Chesapeake Energy’s Revenue Department will recognize that the calculation of the large majority of US and Ohio landowners’ monthly fee is based on imaginings and fraud.
The calculation starts with an imaginary sale of well products to CEMI, the volume of which is un-verified by an employee of the state of Ohio, and ends with Ohioans paying Chesapeake to take our NGLs, by a reduction in the imagined payout for oil and gas. $16 a month per acre doesn’t come close to a 10% Net Royalty let alone a 17.5% Gross Royalty. I like to call this payout Theft.
Along the way there are deductions with no basis to pay for Infrastructure using the titles Fuel Use, Chesapeake’s “Affiliates” and Midstream activities of processing and sending the products on their way to market. The imagined payouts took place long before there was an actual fair market sale.
I believe this issue affecting Ohioans will require a Class Action Suit identical to the Sussenbach Family Class Action Suite in PA.
http://www.oilandgaslawyerblog.com/files/2015/02/Suessenbach-v.-Che...
Utica Watcher, are you a Chesapeake Lover?
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Permalink Reply by Nancy Mosley on
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i just took the time to read the brief. Thank you very much for posting this. Very important topic.
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Thanks Nancy. Reading legal briefs can be arduous. There are a few glitches in the version I posted (such as some lines of text that shouldn't be there). We will be filing a corrected version with the court.
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Permalink Reply by Nancy Mosley on
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Yes I saw some odd things. And, true that it can be challenging but yours was written in a way that a layman with some familiarity with the topic can follow it. Maybe could you post a corrected version when available? And please keep us posted on this.
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Will do.
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Permalink Reply by William G. Williams on -
Ron: our law firm also filed a Brief with the Supreme Court in the Lutz case to protect all Lessors who signed a Krugliak/Williams Group lease. I remember you being in one of our Groups. All Group members will be receiving a message from myself in the near future regarding CHK's breach of the Groups' leases. Our leases' royalty provisions are very different from the Lutz case, however, a broad opinion from the Court could hurt us and likewise, language in the Court's opinion as we requested, could help us tremendously.
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Bill,
I used the ALOV Group to sign an O&G lease, which was derived from your lease.
We discussed the Buck Well 1H problem of not being paid a royalty on NGLs and the bogus attempt by CHK to pay us something so they can call it a royalty.
I hope the Ohio Supreme Court has the Citizens of Ohio in mind when they present their opinion.
If not, we can always apply the state and federal laws that have been violated to date.
The following quote by the CHK NE Region VP keeps coming to mind:
"It's a good business practice not to pay landowner royalties, then go to court and only pay what the judge orders".
Guilty as charged.
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I've seen that quote from the CHK V.P. before. It really says it all!
Reminds me of some automakers who, when deciding whether to use a more expensive, but safer component, run the following math: increased cost of the safer component v. expected payouts in death and injury cases.
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Agree that is pretty damning. Which CHK VP said that? And do you know when specifically it was said? Earnings call?
I'd like to hear or read the transcripts from that call, because that is bad.
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