Ohio couple files arbitration complaint against Chesapeake Energy over unpaid royalties

Columbiana County couple’s arbitration complaint alleges Chesapeake fraudulently calculated oil and gas royalties.

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SALEM, Ohio — Attorneys for a Columbiana County couple have filed an arbitration complaint against Chesapeake Energy and others that they say is the most comprehensive statement of royalty underpayments to date.

The 60-page arbitration complaint, filed Jan. 27 with the American Arbitration Association on behalf of Ronald and Joetta Hale, of Lisbon, Ohio, alleges Chesapeake Exploration, Total E&P USA Inc., Chesapeake Energy Corporation and Chesapeake Operative LLC have underpaid the royalties due the Hales for wells in both Columbiana and Carroll counties.

The Hales have two oil and gas leases with Chesapeake Exploration. The Carroll County well started to produce oil and gas in February 2014 and the Columbiana County well went into production in October 2015.

Owed $9.8 million

Using sale price figures reported in Chesapeake’s quarterly and annual reports filed with the U.S. Securities and Exchange Commission, and composite prices from the U.S. Energy Information Administration, the complaint alleges that by June 30, 2017, Chesapeake will have underpaid more than $9.8 million in royalties to all leaseholders on both wells’ oil, gas and natural gas liquids production, including derivative revenue. The Hales are owed, the complaint alleges, a portion of that total.

The complaint claims the companies understated the amount of the product (oil, natural gas and natural gas liquids) sold; understated the price sold; and deducted nondeductible costs.

The Hales are seeking both compensatory and punitive damages under four counts, including breach of contract, conversion (an unauthorized act that deprives another of his/her property permanently or for an indefinite time) and the Ohio Corrupt Practices Act. The complaint lists breach of contract counts as well as tort claims.

Among other claims, the complaint alleges the energy companies “conspired to deduct, and did deduct, grossly inflated and fraudulent gathering fees from the royalties of claimants and other oil and gas lessors.”

According to Atty. James A. Lowe, of Lowe Eklund & Wakefield Co., Cleveland, the complaint includes the most detailed summary, to date, compiled against the energy companies.

“We have done our best to articulate the claims as clearly and completely as we can,” Lowe said. “This, we believe, is the most comprehensive report of the fact claims, as well as the legal claims.”

The couple is also represented by Atty. Robert C. Sanders, of Maryland.

Among the details included is Chesapeake Energy’s August 2016 report to the U.S. Securities and Exchange Commission that discloses the U.S. Department of Justice, U.S. Postal Service and various states have subpoenaed the company for information on its royalty payment practices.

The complaint also lists detailed descriptions, including 28 tables and charts, of market values, costs and the complicated sales of oil, gas and NGLs, that the Hales claim hides the products’ true value.

Individual arbitration

The Hales are filing for an arbitration ruling, rather than relief in the courts, as required by their oil and gas leases.

The Hales were among 11 individuals seeking class, rather than individual, arbitration on their royalty underpayment claims against Chesapeake, but in September 2016, Judge Bonita Y. Pearson in the U.S. District Court for the Northern District of Ohio ruled in favor of Chesapeake Exploration’s request to compel individual arbitration.

Individual oil and gas leases may or may not include an arbitration provision; the Hales’ leases do.

The Hales were also part of a class action suit filed in November 2015, Hope Christian Fellowship, et. al., vs. Chesapeake Energy Corp., et. al, alleging corporate fraud. Judge Pearson also ruled to compel individual arbitration in that case.

Familiar claim

This is not the first claim that Chesapeake energy companies have underpaid leaseholders’ royalties. Chesapeake Energy Corp. alone is facing royalty lawsuits in Texas, Ohio, Louisiana, Oklahoma, Arkansas and Pennsylvania — including one filed by the Pennsylvania attorney general,

In October 2015, the U.S. Department of the Interior’s Office of Natural Resources Revenue assessed a $2.1 million civil penalty against Chesapeake Energy Corporation, after the company failed to comply with a 2011 order that found “repeated, systemic errors in Chesapeake’s monthly reporting of the amount of gas it produced and sold from Indian leases,” according to an Interior Department news release.

And in January 2015, Chesapeake Energy Corp. agreed to pay $119 million to settle a class action lawsuit in Oklahoma that alleged the company underpaid royalties on nearly 12,000 wells.

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3 COMMENTS

  1. Nothing new here – Chesapeake, and almost every other oil and gas producer in America, has been defrauding mineral owners and states for years, and they keep getting sued for their frauds and thefts, but nothing ever happens to shut down this renegade company, which is about $25 BILLION in debt. A large portion of whose stock is owned by China.

    In Idaho, Alta Mesa Holdings, et al., have been doing the exact same things and are now being called to answer by legislators and mineral owners. Alta Mesa Holdings is about $875 Million in debt with a junk bond rating that was recently upgraded to B3 from a lowly Caa3, and which is deemed by Moody’s Investor Services and Standard & Poors as being “in imminent danger of default on long-term debt obligations.”

    Chesapeake’s crimes and deception began under deceased CEO and Founder Aubrey McClendon, who took the easy way out by driving his natural gas powered SUV into a bridge abutment at high speed after losing his major investor and being informed of pending criminal charges by the FBI and the SEC. Chesapeake has gotten away with this stuff because most mineral owners lack the funding or intelligence to sue them for breach of contract and fraud, and state regulators are often financially indebted to the company, so they look the other way while Chesapeake steals people’s minerals and royalties. They tried that in North Texas and were sued by Sid Bass (the wealthiest guy in Fort Worth) along with the cities of Fort Worth, Arlington and several other Barnett Shale cities with mineral rights leases to Chesapeake.

    If a corporation has enough money it can defraud people and get away with it for years, and all too often the judicial system overlooks facts of crimes and sides with companies like Chesapeake because politicians and judges know they will get a pay-off later down the road by taking care of the corporation today. There is a word for this manipulation of government by oligarchs and corporations for their own benefit at the expense of citizens, and that word is FASCISM! Let’s just call it what it truly is – FASCISM, and nothing else!

  2. iN THE OLD DAYS CHESAPEAKE AND OTHERS OF THEIR ILK were not called Oil Men ( producers) they were called permoters. They drill with others money and run up bills and then disappear , but today file Bankrupcy. In the old days every now and then the turned up inside an oil tank too.

  3. To hear that this couple and others filed a complaint with the American Arbitration Association is discouraging. The AAA is extremely industry friendly as 1) Chesapeake knows the individual arbitrators well 2) Chesapeake will object to any arbitrator who will NOT rule in their favor and 3) the arbitrators are motivated to give a biased ruling in favor of Chesapeake in what ever manner possible in order to obtain more invitations to arbitrate over more CHK cases.

    From the outcomes of the AAA’s rulings, we find very apparent that 1) AAA will purposely ignore evidence against Chesapeake, 2) Will ignore testimony against Chesapeake or show no interest in paying attention to testimony against Chesapeake and 3) AAA will go as far as “essentially rewriting the leases” in favor of Chesapeake (ignore provisions of the lease in their attempt to favor Chesapeake).

    The Oil & Gas companies COLLECTIVELY insisted on arbitration clauses in the leases in Pennsylvania and Ohio because the court system is not as lenient on the Oil & Gas industry in those States, unlike Texas and Oklahoma where the industry owns the court system and their Political Action Committees (PACs) have strong ties to these judges and other politicians.

    The Oil & GAS companies know they will get a free ride from the AAA. By no means will an arbitrator give punitive damages to the plaintiffs: “it just isn’t happening” and they know it.

    The formation of a subsidiary (Access Midstream) and forging of a contract with that subsidiary at a to pay enormous amounts of money for post production costs is an violation of US Anti trust laws. To form this arrangement in order to wrongfully take this money from the landowner is a violation of the Racketeering Influenced and Corrupt Organizations Act (RICO Act).

    With Chesapeake Energy well in violation of the RICO Act and 1) the AAA’s unwillingness to recognize the violation of the RICO Act, 2) the AAA’s desire to rule in favor of Chesapeake in their violations of the RICO Act and 3) the AAA empowering Chesapeake to engage in the violation of the RICO act, the point is well clear that the AAA is a willing participant and accomplice to Chesapeake in these acts of racketeering.

    We need a government crackdown on the AAA.

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