NATURAL GAS: Chesapeake Energy royalties caught in web of litigation — Thursday, September 4, 2014 —

The impact of the Texas cases on Pennsylvania royalty owners is still coming into focus.

The Keystone State doesn’t have its own Heritage case, but plenty of other litigation is playing out. Last year, when royalty owners brought a class action against Chesapeake for underpayment, the company responded within hours after the filing with a proposed settlement of $7.5 million, which has not yet been approved by a judge.

Root, of the royalty owners association, said the settlement could have harsh consequences for landowners because it would apply to a broad class that would then be prevented from bringing other suits against Chesapeake unless they specifically opted out of the settlement.

“I don’t believe it’s a good settlement, and it worries me terribly that it was an opt-out settlement,” said Root, who leases her own acreage in Tioga County to Shell Appalachia. “My fear was, when this settlement did come through, was that people didn’t understand that if they didn’t opt out, then they would be bound to it.”

Royalty owner attorney Michelle O’Brien told EnergyWire at the time that most Chesapeake leases require that disputes be negotiated through arbitration rather than litigation (EnergyWire, Sept. 4, 2013).

But the courts have weighed in on some aspects. Dozens of lawsuits followed the dawn of the Marcellus Shale boom, with accusations that drillers had violated the state’s 1979 Minimum Royalty Act by making post-production deductions. The Pennsylvania Supreme Court found in 2010 that the deductions were generally permissible.

After that case, many royalty owners rushed to renegotiate leases to ensure deductions would not be taken. While they pushed for “without deduction” clauses, lessees came back with “enhancement” clauses that allowed deductions for actions that increase the value of the gas. The result: the same potentially conflicting clauses Texas had to interpret.

So far, no Pennsylvania court has attempted to resolve the clauses, but oil and gas law scholar Bruce Kramer says a result similar to Heritage is unlikely.

“My guess would be that the Heritage case … would not be extended to other jurisdictions,” he said. “They’ll enforce the clause as written, but in a case of ambiguity, they’ll enforce it more strictly against the lessee.”

Josh Fershee, an energy law professor at West Virginia University, said Pennsylvania courts may also be more receptive to the plight of royalty owners.

“Pennsylvania is a lot more likely to side with the landowners than Louisiana and Texas,” he said. “I think there’s a good chance a Pennsylvania court would be sympathetic.”

via NATURAL GAS: Chesapeake Energy royalties caught in web of litigation — Thursday, September 4, 2014 —