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Chesapeake Gas Caught Defrauding Royalty Owners-Lawsuit Judgement in North Carolina - $405 Million Bucks
 

You really have to read this entire article to see all the devious Enron-ish ways Chesapeake (which is 3rd biggest energy company behind Exxon-Mobil and ConocoPhillips) and NiSource tried to game the system while screwing royalty owners out of their money. It's also notable that it isn't just individual land owners, but also businesses.

The Roane County Circuit Court jury found in the case that a gas producer called Columbia Natural Resources LLC — which was once owned by NiSource, but now belongs to Chesapeake — underpaid royalty owners by $134 million and deserved to pay $271 million more in punitive damages.

Of the nearly 9,000 plaintiffs in the class, about 150 are businesses. Among them are major landholding interests such as Cotiga Land Co., Dingess-Rum Properties, Horse Creek Coal Land Co., Horse Creek Coal Co. (which is unrelated to Horse Creek Coal Land), the Klosterman Trust and D.C. Malcolm Inc....

The suit, filed in 2003, alleges that CNR operated wells removing gas under leases with the plaintiff landowners, but did not properly inform them of the true value of gas being extracted.

It also maintains that NiSource forced CNR to sell billions of cubic feet of natural gas in advance of NiSource’s 2000 takeover of CNR parent company Columbia Energy Group. The advance sale generated money needed to help finalize the transaction, according to the suit. ..

NiSource got $400 million upfront, which it used to pay off Columbia Energy debts, in part to gain approval for the deal from the federal Securities and Exchange Commission.

That deal also was used to provide $150 million in “golden parachute” retirement benefits to a handful of Columbia Energy officers.

During the trial, two former CNR presidents testified they were forced, under orders from NiSource, to sell West Virginia gas rights to a company called Mahonia II, based in the Jersey Islands, off the coast of France. That deal involved payment for anticipated future gas production.

“If NiSource and Columbia Natural Resources wanted to engage in speculative Enron-type deals, they had every right to do so, but not on the backs of the royalty owners,” said Segal.

“If they can find a way to deprive regular people who have been cheated of a way to get to court then Enron-type scandals will continue to flourish,” Segal said.

P.S. As expected, Chesapeake, the loser, threatened retaliatory action against North Carolina in the form of business.

Chesapeake Energy Chief Executive Officer Aubrey McClendon said a $404.3 million jury verdict against the company and others has not only caused Chesapeake to put its plan to build a regional headquarters in Charleston on hold, it has also prompted him to reconsider the company’s exploration program in West Virginia. On Jan. 27 a Roane County jury said Chesapeake Energy, Columbia Natural Resources and NiSource Inc. had cheated 8,000 landowners out of $134.3 million in natural gas royalties. The jury also said the companies had committed fraud and awarded the landowners $270 million in punitive damages. “We’re just finishing up the first large three-dimension seismic survey ever shot in West Virginia which, ironically is in Roane County,” McClendon said. “So we’re kind of scratching our heads about what to do with it. “We own most of this acreage already — it’s called ‘held by production by shallower wells,’” he said. “So in terms of timing, if we want to sit on this for the next 20 or 30 years, we can certainly do that. “I’m not willing at this point to commit to a big new exploration program in the state of West Virginia when I don’t know how the leases that I’ve inherited are going to be interpreted by judges across the state. “We’ve got to get definition on that and I’ve asked Gov. (Joe) Manchin to get out in front when the bill hits the Legislature and we’ve asked legislative leaders to support it as well,” McClendon said. The industry bill, “The Fair Production Royalty Payments Act,” is expected to be introduced this week.

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Last Comment by Bill- Joy... Because they have breached the agreement, I'd hire an attorney (from chi or ny) and notify the energy company to cease and desist immedi.... 4 Jul 2010 | 00:38



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Comments!  
1 - ricky   22 Oct 2008 @ 16:44

They have just screwed a bunch of us in North Louisiana, after signing letters of intent to lease our land, which was written in no uncertain terms" lessor may NOT accept any other offers, once CHK accepted our intent letter.  

All of us did receive other offers, but declined, due to what we took as a contract in good faith

 One day before signing the lease, they backed out and are refusing to talk to us.

2 - David Hurd   19 Jul 2009 @ 00:35

After reading this, my suspisions that Chesapeake is not paying proper royalties to me and my neighbors, has been heightened. We are recieving considerably less per MCF than some of the other royalty owners that are leased by other companies such as EOG. Johnson county, Texas. Barnett shale. 

3 - Mary   23 Sep 2009 @ 18:25

To Ricky above:  Your story sounds very, very familiar to me!

To David Hurd above:  I'm glad for you that you at least got your lease money.  I am in the Burleson, TX holdout group...still waiting, waiting, waiting!

4 - Joy   11 Nov 2009 @ 18:46

We (husband and I) have 175 acres of timberland in WV. Chesapeake made a deal for the FIRST well in 2006. We were told by two representatives we would first get money based on foresters estimate for the trees they felled (nice, big hardwood trees); then we were free to sell them to the timber co. of choice; then we would be paid per foot of pipe going through our prop., plus damages. We have yet to receive anything! We were stupid then, and again last year when noticed of another well. Supposedly, this well is on a neighbor's property which abuts ours, but my husband is up there now, and it sure appears as if it's on ours (no one in this area has ever had a true survey done). This time, they felled many more trees than before, plus put in a road which has allowed the piracy of the trees which are our retirement! (My husband is 61 and I'm 55, and we for now are stuck in FL unable to sell our home to move to this land of our dreams due to the economy and overbuilding in this part of FL.) This is all new to me, but I'm finally investigating just to find out how much $ per foot of pipe thru our prop. they should be paying us. I'm willing to take it to court, but 3 attorneys called have not been receptive. What is the avg. $ per foot for natural gas in an area which apparently is very fruitful, since they have a number of nat. gas wells all around our prop., including our own?

5 - Josh   27 Apr 2010 @ 14:21

@Joy, the few pipeline right-of-way agreements that I have negotiated, were usually in the range of $5-$15 per rod. Howver, this is something that is negotiable to an extent. I have done a lot of work for CHK in the past, and have not seen any problems in the area that I have worked. However, when acquiring someone else's leases, they may not have done a very good job on their due dilligence, and unfortunetely this is the end result. Damages should definetely have been payed, I would keep trying to contact them to get the issue resolved.

@David, there may be a difference in money received, depending upon the royalty that was negotiated. Some royalties are higher, but are a net royalty, and others may be lower, but are on gross production.

@Ricky, even if a lease is signed and executed, the Lessee(CHK, EOG, etc..) has the right to terminate the lease at any time. Unfortunetely not all Landmen will explain all the details of a lease, and if you get an attorney, not all actually know much regarding an Oil & Gas Lease.

6 - Bill   4 Jul 2010 @ 00:38

Joy...

Because they have breached the agreement, I'd hire an attorney (from chi or ny) and notify the energy company to cease and desist immediately.  Notify them that their equipment and piping on your land will be forfeited and auctioned in partial renumeration for the damages caused to date.  Then I would file a breach/fraud/rico complaint against them in your state's capital in federal court.


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