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Chesapeake Settles Another Royalties Dispute Over Barnett NatGas

Chesapeake Energy Corp. has agreed to pay the North Texas city of Arlington $700,000 to settle a dispute over Barnett Shale-related natural gas royalties.

The settlement agreement, which requires court approval, involved payments for 25 leases of varying sizes covering 1,900 acres of city-owned properties. Arlington officials claimed that Chesapeake and partner Total E&P USA based royalty payments on gas prices below the actual sales price and said the producers had improperly deducting some post-production costs. The unit of Paris-based Total SA owns a one-quarter stake in the affected leasehold.

The lawsuit, filed in the 141st State District Court of Tarrant County, claimed damages of more than $1 million covering agreements between 2006 and 2012. The city council on Tuesday voted 8-0 to accept the out-of-court settlement.

Chesapeake, the second-largest producer in the Barnett, denied any wrongdoing as part of the agreement. Chesapeake and Total claimed in court documents that Texas law allows some post-production costs to be deducted from royalty payments.

Chesapeake spokesman Gordon Pennoyer said the company was satisfied with the "mutually acceptable agreement" and was looking forward to "continuing our partnership." Since 2006, Chesapeake has paid Arlington more than $12 million in royalties, according to the company.

Chesapeake has won some and lost some royalty payment-related lawsuits regarding the Barnett. In July it won two cases related to royalty underpayments (see Shale Daily, Aug. 4). However, in March, the Fourth Court of Appeals in Texas affirmed that Chesapeake had improperly deducted drilling expenses from royalty payments to the Hyder estate (see Shale Daily, March 11). The Tarrant County court at that time awarded the Hyder estate close to $1 million, including $700,000 in unpaid royalties.

Chesapeake, like many of its peers, still faces dozens of similar lawsuits elsewhere, including with the city and school district of Fort Worth, TX. The Arlington school district, which had joined its city's lawsuit in November regarding royalty miscalculations, is continuing to negotiate a settlement with the producer.

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