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Chesapeake Energy’s Royalty Records Under Scrutiny

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In November Chesapeake Energy disclosed that the United States Department of Justice subpoenaed records, including demands for documents, information, and testimony, from their company. The records requested relate to Chesapeake Energy’s royalty payment practices to mineral owners. Specifically, mineral owners in both Pennsylvania and other states have voiced concern over the amount of post-production costs that are being taken from their royalty checks. Chesapeake reports that it is responding to the subpoenas and demands of the Department of Justice.

Chesapeake also reported that in Pennsylvania, two statewide class actions were filed in 2014 on behalf of royalty owners.

Pennsylvania law requires that landowners receive a minimum royalty of 12.5 percent of the value of oil and gas produced. However, mineral owners have found that companies are deducting post-production costs in excessive amounts, bringing the percentage that the mineral owner actually enjoys way lower than the minimum amount.

The terms of an oil and gas lease will state what, if any, post-production costs can be deducted from a mineral owner’s royalty. Oftentimes this language in a lease is not clear or friendly to the oil and gas rights owner. It is important to have your lease reviewed by an attorney prior to signing, to ensure that you are clear on the royalty that is being offered to you, and how the language regarding post-production costs can change the amount of that royalty.

The filing by Chesapeake Energy Corporation can be found with the Securities and Exchange Commission online at Chesapeake Energy Corp. Quarterly Report to SEC.