The nation's second leading producer of natural gas, Chesapeake Energy Corporation, has decided to settle a Pennsylvania leaseholders' complaint and pay out $7.5 million to PA residents who claimed they were shorted, sometimes as much as 95%, on their royalty checks. Although deductions are allowed to be made on certain drill sites in PA, the class action lawsuit claimed that Chesapeake Energy took advantage of these deductions, which were disallowed via drill site contracts, in order to save money.

The settlement, which will pay thousands of landowners, alleged that Chesapeake recouped post-production expenses from leaseholders' royalties. While PA law allows for such deductions, although with limitations, the property owners claimed that their contracts with Chesapeake distinctly prohibited such deductions. Next to senseless drilling accidents, unpaid royalties can be an energy company's biggest faux pas. 

The agreement was filed last Friday in the U.S. District Court in Scranton, PA. Governor Corbett has openly praised the deal and told reporters that he had even personally appealed to Chesapeake's brand new CEO, Doug Lawler, about this case and the possibility of more like it in the future. While Chesapeake doubted many of the accusations against them, company spokespeople have leaked that Lawler is trying to clean up the company's image. The $7.5 million settlement also comes at a time when leaked Chesapeake Energy emails have said that as many as 500 employees will be laid off in the near future. While Lawler and other executives refused to give a statement, a spokesman did send out a mass email to media outlets that simply said: "Chesapeake is pleased to have reached a fair and reasonable agreement with (the plaintiffs), and we are hopeful the Court will approve the resolution of this dispute."

The accuracy and amount of royalty payments to drill site landowners came under serious discussion this past summer when state legislators passed a new law clarifying the data that drilling companies like Chesapeake send prospective landowners with "fertile" land. It was reported that some lost as much as 95% of their royalty monies to deductions that drillers were taking.

Chesapeake Energy has been scrutinized in the past for taking unwarranted deductions and, as of last month, faced over a dozen lawsuits concerning royalties. The most deplorable accusations, like the ones in this settlement, have been that the company is deducting costs unlawfully by breeching contracts that prohibit deductions. Attorneys for the plaintiffs in the class action suit say that only Chesapeake Energy knows how many people have been affected by these poor business practices across our region. Interestingly, while the $7.5 million will be doled out to thousands of landowners and the class action attorneys, some are being encouraged to opt out and negotiate individual settlements with Chesapeake.

Source: "Chesapeake Energy agrees to pay $7.5 million to settle royalties lawsuit" 4 September 2013