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Chesapeake Agrees to Larger Settlement With Pennsylvania Landowners

A new proposal amending a settlement between a group of Pennsylvania landowners and Chesapeake Energy Corp. that's been tied up in federal court for more than a year now would find the company paying $3.5 million more than originally agreed if approved by a judge.

The settlement, first reached in August 2013 by lead plaintiff Demchak Partners LLP and 13 others in U.S. District Court for the Middle District of Pennsylvania, had Chesapeake agreeing to pay $7.5 million to resolve claims that it improperly deducted post-production fees from royalty checks (see Shale Daily, Sept. 4, 2013).

But a proposal filed last month by the O'Brien Law Group, which represents the plaintiffs, shows the company is now agreeing to pay $11 million in the settlement and revising lower the portion of post-production costs landowners in the case will be required to pay going forward.

The class action lawsuit alleged that Chesapeake unfairly deducted post-production fees from royalties to cover marketing costs, despite lease terms that the plaintiffs said precluded it from doing so. The lawsuit also claimed that the fees charged were more than the actual costs incurred and that the company improperly based the royalties on the market value of the natural gas before it was processed, which was lower.

Before the first settlement could be approved, however, competing claims from other larger groups of landowners seeking more compensation, complicated the Demchak case and forced a federal judge and arbitrators to reconsider which group would be better suited to represent the class of affected landowners (see Shale Daily, Sept. 11, 2014).

Under the latest proposal, Chesapeake would pay $3.5 million more and reduce landowner's share of post production costs from the originally agreed upon 72.5% to 66%.

"We are pleased to reach this fair and reasonable agreement," Chesapeake spokesman Gordon Pennoyer said. "We look forward to moving past these legacy issues and further strengthening our partnership with Chesapeake's royalty owners and the commonwealth of Pennsylvania.

In September, Michelle O'Brien, of the O'Brien Law Group, defended the Demchak settlement and told NGI's Shale Daily that "if people don't like it, they can opt out," in reference to the competing claims from other groups that were critical of how quickly the settlement was reached.

A federal judge must now review the latest proposal, and others with a stake in the case can opt out or file objections.

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