At the end of last year, Chesapeake Energy offered a $30-million olive branch to Pennsylvania landowners to settle claims that the company had “robbed” them out of royalty money by artificially inflating post-production costs. Chesapeake’s proffered deal would give average Pennsylvania leaseholders (some 14,000 of them) a one-time $2,140 payment — adjusted up or down for their acreage size. That concession by Chesapeake in the proposed deal gives landowners the right to reset the terms of their leases going forward.
Here’s the deal
Every Chesapeake lessor would get to pick how their royalties are paid going forward. Landowners can choose to continue letting Chesapeake market the gas outside of the region (theoretically for a higher price), while still requiring the landowner to share in post-production expenses. Or, landowners can rework the lease so no post-production expenses are deducted. In the second case, royalties would be based on the local price of gas in that landowner’s area — typically in the basement.
The catch is that Chesapeake won’t pull the trigger on the deal until Josh Shapiro, Pennsylvania’s attorney general, who has an ongoing, separate lawsuit filed against Chesapeake over the same issue, settles as well.
Shapiro says that he won’t cave to Chesapeake’s “pressure tactic” and settle, leaving Pennsylvania lease owners caught in the middle.
Some want the Chesapeake $30 million deal, saying a bird in the hand is better than two in the bush. That is, the attorney general may eventually lose his case, and it may take years to play out. Why not take the money and run now, especially if landowners can reset the lease terms to prevent any more gouging by Chesapeake?
Other landowners, including Jackie Root, National Association of Royalty Owners (Pennsylvania chapter) president, say Pennsylvania landowners deserve better than the deal offered by Chesapeake. After a recent meeting with Shapiro, Root noted: “I see a firm conviction to see this through. A settlement certainly could happen. But the number would have to be much higher, and without a third in attorney fees.”
The attorney general’s office is signaling it may settle — if Chesapeake picks a number higher than $30 million.
Stay tuned, Pennsylvania leaseholders.
Source: Marcellus Drilling News