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Chesapeake Agrees to Settle NatGas Royalties Lawsuit in Oklahoma

Chesapeake Energy Corp. has agreed to pay $119 million to settle a lawsuit in Oklahoma that alleges the producer underpaid natural gas royalties on nearly 12,000 wells over a 10-year period.

The preliminary settlement is scheduled to be reviewed in April at a fairness hearing by Oklahoma District Judge Jon K. Parsley of Beaver County.

According to filings, Chesapeake Operating LLC agreed to pay for improperly deducting expenses for marketing, processing, compression and other midstream services for 11,800 gas wells. The lawsuit covers production numbers from 2004 through 2014.

Landowner John Fitzgerald sued Chesapeake in 2010 for the underpayments; the case was given class-action status in February 2013. On appeal, class-action status was overturned and the case was returned to the district court. Mediation between the parties began in 2014.

A Chesapeake spokesman called the settlement "fair and reasonable," and he said the company would work on "strengthening our relationships with our Oklahoma royalty owners."

The settlement follows a similar case in Oklahoma that was completed in 2013. At that time, Chesapeake agreed to pay $18 million to the Oklahoma Commissioners of the Land Office, which manages leases and royalty interests for school land.

Oklahoma City-based Chesapeake has settled royalty-related lawsuits in the state worth more than $1 billion since the late 1990s, according to the Coalition of Oklahoma Surface and Mineral Owners. In similar royalty underpayment cases across the country, Chesapeake has prevailed in some lawsuits while in other cases it has settled.

Two years ago, the U.S. Department of Interior's Office of Natural Resources Revenue fined Chesapeake $765,000 for "knowing or willful submission of inaccurate information" on royalty reports for a lease in Oklahoma from May 2011 through July 2012 (see Shale Daily, April 3, 2013).

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