Affiliates of Chesapeake Energy Corp. and Total SA again have defeated a class action lawsuit in federal court that sought to recover millions of dollars for landowners who alleged the companies underpaid royalties on oil and gas produced from properties in Eastern Ohio.
The U.S. District Court for the Northern District of Ohio agreed with the defendants’ interpretation of how royalty payments should be calculated and paid to the plaintiffs under the terms of their leases.
The court found that the language of the leases was not ambiguous, and a result was “the beginning and the end of this case.” Judge Benita Y. Pearson also rejected the plaintiffs’ claim that they should receive royalties based on proceeds of sales at downstream locations, which carry a higher value.
Pearson found that the netback method of determining royalties at the wellhead was appropriate given the companies’ contracts with landowners. The netback method calculates the wellhead price by determining the downstream value of oil, gas and natural gas liquids less post-production costs to market and process the products.
The case pitted producers against three named plaintiffs, Zehentbauer Family Land LP, Hanover Farms LP and Robert Milton Young Revocable Trust. A broader class of landowners was certified in July 2018 that identified 224 members with interests in 295 leases with the producers that sought a minimum of $30 million.
Chesapeake exited Ohio in 2018 with the $2 billion sale of its Utica Shale assets to Houston-based Encino Acquisition Partners. The company and other producers have battled similar claims over how royalties are calculated across the country, in some instances settling class action cases for millions of dollars.