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Chesapeake Agrees to Another $1M Settlement For Barnett Royalties Underpayments

The Fort Worth, TX school district late last year reached a $1 million out-of-court settlement with Chesapeake Energy Corp. concerning underpaying natural gas royalties, details that until this week had been kept confidential.

Chesapeake had attempted to keep the settlement's details private through a confidentiality agreement signed by the parties in December. However, after news organizations protested under the Texas Public Information Act, the Texas attorney general's (AG) office ordered the school district to release the information.

Fort Worth school district officials in 2014 had accused Chesapeake of using sham sales to affiliates and outright fraud to subtract an unspecified amount of post-production costs from its Barnett Shale gas royalty payments. The district’s lawsuit included at least 30 leases covering at least 1,000 acres.

Under the terms of the settlement, Chesapeake agreed to pay the district the price for the Natural Gas Pipeline Co. of America-Texok Zone as published in an industry market report minus 65 cents/MMBtu. Chesapeake also agreed to pay $50,000 in attorneys fees. In addition, the agreement released any claims by the district against joint partner Total E&P USA, which owns a 25% stake in Chesapeake's Barnett holdings. Last month Total E&P agreed to pay $6 million to the city of Fort Worth for underpaying gas royalties on leases it co-owns with Chesapeake (see Shale DailyMarch 23).

Chesapeake reached a settlement last year, according to the documents, but it had argued that releasing details about the settlement would allow the information to be used against it, portraying other litigants as "competitors." However, Texas Assistant AG Nicholas Ybarra said the Oklahoma City producer had "failed to demonstrate release of the information at issue would give advantage to a competitor or bidder."

Chesapeake and many of its onshore peers across the country have been dogged by accusations of underpaying royalties to landowners. By itself, Chesapeake has faced and continues to face dozens of landowner lawsuits in Texas. Most of the cases to date in Texas have involved royalty underpayments in the Barnett Shale, but Eagle Ford Shale leaseholders last month also went after the producer (see Shale DailyMarch 11).

The producer has settled several high profile royalties lawsuits in Texas, including with the city of Arlington (see Shale DailyAug. 21, 2014). However, the city of Fort Worth's $33 million lawsuit against Chesapeake is still pending.

Chesapeake has a mixed record in Texas regarding the royalties lawsuits, winning some, losing others (see Shale DailyAug. 4, 2014). In one of the higher profile cases, the Texas Supreme Court earlier this year denied a request by Chesapeake for a rehearing regarding a case in which a Fort Worth family was awarded at least $1 million in royalties, interest and fees for gas wells drilled in the Barnett (see Shale Daily, Feb. 3).

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