Marcellus shale: Chesapeake comes under fire for extra post-production costs

HARRISBURG, Pa. — Chesapeake Energy is under scrutiny by top Pennsylvania officials, after Pa. Gov. Tom Corbett sent a letter to Chesapeake about its business practices involving royalties.

Letter sent

Corbett sent a letter Feb. 13 to Doug Lawler, Chesapeake Energy CEO,  stating he had received complaints from Pennsylvania residents and leaseholders regarding practices “which strike many as unfair and perhaps illegal.”

Corbett said it defied logic that leaseholders could actually owe Chesapeake money rather than receive a royalty.

“I believe it is incumbent upon Chesapeake Energy to take action to restore the fair treatment of my constituents. Pennsylvania landowners deserve nothing less,” Corbett stated in the letter.

Inquiry requested

Corbett has also asked Pa. Attorney General Kathleen Kane to look into the matter, and Kane’s office was also asked to look into the matter by state Senator Gene Yaw.

Yaw represents the 23rd district in Pennsylvania which includes Bradford, Susquehanna, Sullivan, Union and Lycoming counties. This area is where the Marcellus shale boom began several years ago and remains a heavily drilled area.

According to the attorney general’s office, Kane is reviewing the requests.

Yaw wrote to Kane and asked for an official inquiry. He says his office has received complaints primarily involving the deduction of “what are believed to be excessive post-production costs” by Chesapeake Energy.

During a public hearing June 27, 2013, the Pa. Senate Environmental Resources and Energy Committee heard testimony that deductions by Chesapeake “were as high as 100 percent of some royalty checks,” Yaw said in a news release.

Introduced legislation

Yaw has introduced a package of three bills, known as the Oil and Gas Lease Protection Package.

Senate Bill 1236 would expand upon the Oil and Gas Lease Act by letting royalty interest owners inspect records of gas companies to verify proper payments. Information provided by a gas company would not be disclosed to any other person, other than a current leaseholder.

Senate Bill 1237 would prohibit a gas company from retaliating against any royalty interest owner by terminating their lease agreement or ceasing development on leased property because a royalty interest owner questions the accuracy of current royalty payments.

Senate Bill 1238 would require a gas company to record a satisfaction piece in the county Recorder of Deeds office where the oil and gas well is located within 30 days upon expiration, termination, or forfeiture of an oil and gas lease.

The satisfaction piece will release the gas company’s interests in the oil and gas.

In the House, H.B. 1864, introduced last fall, clarifies that any deduction for postproduction, market-enhancement or similar costs shouldn’t result in royalty owners receiving less than the guaranteed minimum 1/8 royalty provided by state’s the Oil and Gas Lease Act.

Chesapeake

Chesapeake Energy declined to comment on the matter.

About the Author

Kristy Foster Seachrist lives in Columbiana County raising sheep and horses. She earned her degree from Youngstown State University and has worked in both print and broadcast journalism. You can follow her on Twitter at http://twitter.com/fosterk96. More Stories by Kristy Foster Seachrist

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