Tentative agreement calls for natural gas firm to compensate more than 1,000 leaseholders

Last updated: August 31. 2013 12:23AM - 4428 Views
JON O’CONNELL joconnell@timesleader.com

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SCRANTON — A federal class-action lawsuit filed Friday was resolved within hours between more than 1,000 natural gas leaseholders and energy development giant Chesapeake Appalachia LLC.

The suit — filed by Demchak Partners Limited Partnership, a cross-county group of natural gas leaseholders embittered by what they deem as excessive production fees withheld from their royalty checks — demanded damages for royalty underpayment, according to the lawsuit complaint.

Chesapeake agreed to a settlement of no less than $7.5 million to reimburse leaseholders for a percentage of production fees.

The leased properties in question all sit in Susquehanna and Bradford counties.

Terms of the agreement say the leaseholders in the class are to pay 72.5 percent of post-production costs instead of the entire 100 percent, which is part of Chesapeake’s standard for calculating royalty payments, according to the agreement.

After natural gas is extracted from the ground, it goes through a series of treatments to remove moisture, add odorant that gives the gas its distinct smell and compress it for travel through pipelines. Production companies are allowed by law to deduct money from royalties to cover these procedures, provided lease agreements do not pr0hibit it.

Moosic attorney Michelle O’Brien, one of seven lawyers listed representing the 10 plaintiffs named in the suit, said preparation for this filing started months ago. The plaintiffs listed in the suit represent more than 1,000 members of the filing class, O’Brien said.

“We’re thrilled with the resolution we came up with,” O’Brien said of the settlement.

The complaint contends that, under the lease, Chesapeake was not allowed to deduct fees from royalty payments in the name of preparing gas for market. Because the gas is not in its marketable state until it reaches one of several interstate pipelines, the suit states total fees withdrawn for “post-wellhead activities” violate lease agreements.

Attorneys for both sides filed a motion to approve the settlement this afternoon, and O’Brien hopes to have the matter resolved Tuesday when the courts re-open.

In an email, Chesapeake spokesman Jim Gipson said company executives are content with the settlement.

“Chesapeake is pleased to have reached a fair and reasonable agreement with Demchak Partners Limited Partnership,” said Gipson, “and we are hopeful the court will approve the resolution of this dispute.”

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