Natural Gas Royalty Lawsuit

The Pennsylvania Office of Attorney General settled its lawsuit against Chesapeake Energy and obtained $5.3 million as part of the settlement to distribute to Pennsylvania landowners with Chesapeake leases.  The records we received from Chesapeake Energy have you listed as a Chesapeake royalty owner.  The check represents a one-time cash payment based on your lease’s royalty provision. Given Chesapeake’s bankruptcy, these amounts are pennies on the dollar compared to what Chesapeake took from landowners as alleged improper deductions.  The bankruptcy laws permit companies to avoid paying the full amount of their debts and reorganize to continue in business.

Generally, the total check amounts depend on the type of lease (MEC or Non-MEC), the percentage ownership share in the lease and the number of leases owned.  Before factoring percentage ownership and number of leases owned, the base amount for a Non-MEC lease is $202.07 and the base amount for a MEC lease is $561.11. These amounts are less than anticipated, because the original estimates were calculated using a smaller number of leases provided by Chesapeake.  Chesapeake later supplemented these numbers with additional lease owners resulting in lower check amounts.

Landowners may receive multiple checks because they have multiple leases or multiple fractional shares of leases and because of Chesapeake’s record keeping with multiple owner numbers for the same leases.

Yes, it is a one-time cash payment based on your lease’s royalty provision. Given Chesapeake’s bankruptcy, these amounts are smaller than the amounts we alleged Chesapeake took from landowners as alleged improper deductions.  The bankruptcy laws permit companies to discharge their obligations and reorganize to continue in business.

Please contact the Antitrust Section at 717-857-2263 to speak with a member of the Antitrust Section and provide the correct information.  The Antitrust Section will work with Chesapeake to get Chesapeake’s records updated so that we can issue a new settlement check to the correct legal owner. Please also return the original check to the Pennsylvania Office of Attorney General, Antitrust Section, 14^th Floor Strawberry Square, Harrisburg, PA 17120

Chesapeake provided it as part of the settlement agreement between the Pennsylvania Office of Attorney General and Chesapeake.

Please contact the Antitrust Section at 717-857-2263 to advise you received the check addressed to someone else.  Please also return the check to the Pennsylvania Office of Attorney General, Antitrust Section, 14th Floor Strawberry Square, Harrisburg, PA 17120.

The settlement provides a one-time payment by check only.  The reference to direct deposit is not applicable to landowners receiving money under the settlement.  It is a message that Pennsylvania Treasury intends for vendors that routinely provide services to the Commonwealth.

All Chesapeake royalty owners were to be provided the opportunity to select a new option for how their monthly royalty is calculated.  In particular, Chesapeake royalty owners could choose an option that excluded deductions from royalty payments.  If you did not receive notification from EPIQ, the Settlement Administrator, about this opportunity please contact the Antitrust Section at 717-857-2263.

All Chesapeake royalty owners also benefit from improved protections for landowners through:

1. 1. A new Ombudsman selected by the OAG and Chesapeake to respond and seek to resolve landowner complaints;
   2. OAG Compliance and inspection rights so the OAG has access to Chesapeake’s books and records to ensure Chesapeake is complying with the terms of the settlement;
   3. Chesapeake’s annual reporting to the OAG regarding leases, gas production, deductions and any landowner complaints received.

 The options depended on the type of lease:

1. 1. MEC and Ready for Sale or Use Leases – Landowners will be paid royalties going forward the higher of an In-Basin Price, which is based on local index prices (50% Leidy Hub and 50% TGP Zone 4) with no deductions, or the NetBack Price which is the price Chesapeake receives for its production month sales to third parties minus a proportionate share of the Post-Production Costs that Chesapeake incurs.
   2. Non-MEC Leases – Landowners can make a one-time choice to be paid royalties going forward either the In-Basin Price, which is based on local index prices (50% Leidy Hub and 50% TGP Zone 4) with no deductions, or the NetBack Price which is the price Chesapeake receives for its production month sales to third parties minus a proportionate share of the Post-Production Costs that Chesapeake incurs.  If landowners do not select the new In-Basin Price option, they will continue to be paid as they have been paid – the NetBack Price.

Please contact the Antitrust Section at 717-857-2263 to discuss your lease.  Chesapeake has certain leases, which expressly prohibit Post-Production Deductions (which are not contained in the MEC or RFSU Lease categories). If Chesapeake discovers it is taking any prohibited Post-Productions from such leases, it will discontinue doing so.

The deadline to make an Election was January 28, 2022.

Contact the Antitrust Section at 717-857-2263 or antitrust@attorneygeneral.gov

For MEC leases, Chesapeake implemented the “higher of” election for the February 2021 production month.  So each month, MEC lessors receive the higher of the local in-basin price without deductions on the net-back price with deductions.

For Non-MEC leases, Chesapeake implemented the election for the March 2022 pay statements for the January 2022 production month and made any necessary adjustment for December 2021 production month on the March pay statement.

The settlement was approved by the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division on March 31, 2021 and effective on April 15, 2021.  Many of the settlement provisions took effect 60 days from April 15, 2021.  You should have received notice of the OAG Settlement from Epiq, the Settlement Administrator for both the OAG Settlement and the Class Action Settlements.  You did not need to participate in the Class Action Settlements to participate in the OAG Settlement.

The OAG Settlement only applies to Chesapeake, not other gas companies.

The OAG Settlement does not impact the OAG’s lawsuit against Anadarko which continues.  The Pennsylvania Supreme Court issued a decision on Anadarko’s appeal on March 24, 2021.  The Court determined that the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL) does not apply to Anadarko’s conduct involving natural gas leases as Anadarko was a buyer of natural gas mineral interests instead of a seller.  The Court remanded the case to the Bradford County Court of Common Pleas to hear the OAG’s remaining claims alleging Anadarko allocated markets with Chesapeake to secure natural gas leases instead of competing for leases in violation of Pennsylvania’s Antitrust Common Law.

The Private Class Settlements announced in 2018 are unrelated to the OAG Settlement.  However, you received a combined notice of the OAG Settlement and the Class Settlements from Epiq, the Settlement Administrator.  You did not need to participate in the Class Settlements to participate in the OAG Settlement. You will automatically receive the one-time cash payment under the OAG Settlement, but if you have a Non-MEC lease and wanted to take advantage of the new payment methodology under the OAG Settlement, you had to elect to do so or else you will continue to be paid as you currently are being paid.

No. The OAG Settlement is completely separate.

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The OAG and Chesapeake selected the Ombudsman

The Ombudsman will be paid by Chesapeake Energy and settlement terms state the position will be paid for 5 years.

No, the OAG Settlement was only with Chesapeake Energy.  Landowners with complaints about other gas companies should direct them to the OAG.

No, please direct all concerns to the Antitrust Section at antitrust@attorneygeneral.gov or 717-857-2263.  The OAG will attempt to resolve your concerns with Chesapeake.  If the OAG cannot resolve your concerns, OAG will send them to the Ombudsman to review and address with Chesapeake Energy.