Gas Production Companies Accused of Underpaying Royalties to Land Owners

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A proposed class action lawsuit has been filed against a group of oil and gas production companies alleging the parties deducted unlawful amounts from the plaintiffs’ gas royalty payments. The suit was filed by three consumers who lease their land to the defendants for the collection, processing, and sale of the natural gas therein and are paid royalties based on the sale of the final product.

The complaint notes that lessees like the defendants may deduct from royalties the cost of “post-production” procedures – the processes undertaken to transform the gas into “marketable condition” after it is removed from the well – but may not charge “an excessive amount.” The suit argues that the defendants, as part of an agreement to solve Chesapeake’s financial struggles, made “unreasonable” deductions from the plaintiffs’ royalty payments for the purported midstream costs of gathering, compressing, dehydrating, treating, and processing the gas.

The defendants in the suit have been named below:

• Access Midstream Partners, L.P. (now known as Williams Partners, L.P.);
• Chesapeake Energy Corporation;
• Chesapeake Operating, L.L.C.;
• Chesapeake Exploration, L.L.C.;
• Chesapeake Energy Marketing Inc.;
• Chesapeake Midstream Partners, LP;
• Chesapeake Appalachia, LLC;
• CHK Utica Preferred Holdings, LLC; and
• Total E&P USA, Inc.