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A 2010 file photo shows Nomac Drilling Corp. derrick man Justin Spruell, right, climbing down from an overhead platform after connecting a section of drill pipe on a Chesapeake Energy Corp. natural gas drill site in Bradford County, Pa.
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Chesapeake agrees to settle natural gas royalty dispute in Pennsylvania

Daniel Acker / Bloomberg

Chesapeake agrees to settle natural gas royalty dispute in Pennsylvania

Thousands of landowners to get small payments, as part of agreement with attorney general

Pennsylvania’s attorney general has reached a $5.3 million settlement agreement with Chesapeake Energy Corp. in a 5-year-old case that alleged the natural gas company underpaid royalties and used deceptive practices to secure leases with Pennsylvania landowners.

The settlement includes small payments for thousands of affected property owners and an option to choose new methods for calculating royalty payments going forward.

The attorney general’s office said restitution payments to landowners will range from about $367 to $700, depending on their lease language.

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Landowner advocates have estimated that Chesapeake deducted more than $100 million in contested gas processing and transportation costs from landowners’ royalties in northeastern and north-central Pennsylvania. At times, landowners received $0 even as the company’s wells pulled billions of cubic feet of gas from the Marcellus Shale beneath their properties.

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At a news conference in Wyoming County on Monday, Attorney General Josh Shapiro said the settlement ends Chesapeake’s “long-standing business practices that took advantage of landowners.”

“To be clear, we’re not here with the full victory that landowners deserve,” Mr. Shapiro said, because Chesapeake “sought to wipe out their debt to Pennsylvanians” in bankruptcy court.

Oklahoma-based Chesapeake is one of Pennsylvania’s dominant natural gas producers, but it filed for bankruptcy protection in June and emerged from bankruptcy last month.

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The company had previously reached settlement agreements in two class-action cases brought by Pennsylvania royalty owners with similar claims of unfair deductions. Those settlements were also finalized last week, according to bankruptcy court filings, for a combined $6.25 million in addition to the restitution payments in the attorney general’s case.

The settlement payments in the class-action cases had initially been negotiated for $30 million.

Under the settlement agreements, landowners have a new option to receive future royalties based on a northern Pennsylvania regional index price, without any deductions.

The attorney general’s settlement also establishes an ombudsman to respond to landowner complaints and requires Chesapeake to report data on its deductions to the attorney general’s office.

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Chesapeake will pay $350,000 to the attorney general’s office for its costs and fees.

The settlements must still be approved by a bankruptcy court in Texas.

“Chesapeake greatly values its relationships with Pennsylvania royalty owners and is pleased to have reached a global resolution with them and the attorney general that addresses royalty owners’ concerns,” company spokesman Gordon Pennoyer said.

The company denied the claims in the lawsuits and said in court filings that it “believes it paid royalties consistent with the leases and Pennsylvania law.”

In Bradford County, the heart of Chesapeake’s Pennsylvania leasehold, Commissioner Daryl Miller said landowners were misled and mistreated by the company.

“I’m very disappointed,” he said. “Certainly $100 million plus has been deducted over the last number of years. To leave landowners like that, it is sad. Extremely sad.”

Laura Legere: llegere@post-gazette.com

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First Published: March 8, 2021, 10:54 p.m.

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A 2010 file photo shows Nomac Drilling Corp. derrick man Justin Spruell, right, climbing down from an overhead platform after connecting a section of drill pipe on a Chesapeake Energy Corp. natural gas drill site in Bradford County, Pa.  (Daniel Acker / Bloomberg)
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