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Pennsylvania Agrees To Settle Gas Drilling Royalties Lawsuit

Sue Ogrocki

Pennsylvania reached a settlement in a lawsuit against natural gas driller Chesapeake Energy Corp. for its handling of royalty payments to property owners, state Attorney General Josh Shapiro announced Monday.

Speaking in Tunkhannock, a northeastern Pennsylvania town in the heart of heavy Marcellus Shale natural gas production, Shapiro said the agreement called for $5.3 million in restitution and improved royalty payments going forward.

“It is the beginning of a new day and new protections for landowners,” said Shapiro, a Democrat, touting terms that include appointment of a mutually agreeable ombudsman to investigate landowners’ complaints.

The lawsuit was filed more than five years ago against Oklahoma City-based Chesapeake, which filed for bankruptcy protection in Texas in June.

Chesapeake communications and investor relations director Gordon Pennoyer noted the agreement still requires the bankruptcy judge's approval.

“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," Pennoyer said in an email. “The company looks forward to working collaboratively with Pennsylvania royalty owners going forward..”

The lawsuit, filed in December 2015 and amended in 2016 to include Anadarko Petroleum, claimed the two companies split up markets, keeping landowners from getting better deals by seeking competitive offers.

An appeal in the litigation involving Anadarko about whether the state's consumer protection law applies is pending before the Pennsylvania Supreme Court.

Shapiro said Chesapeake, which emerged from bankruptcy last month, has agreed to stop making deals with Pennsylvania landowners that contain “market enhancement” or “ready for sale or use” clauses.

Depending on the type of lease they signed, affected Chesapeake lease holders will receive about $367 or about $700, as well as the ability to decide what sort of agreement they want to have with Chesapeake going forward.

“This settlement will end the abuse from Chesapeake and allow landowners to take a new lease with no deductions — that's the bottom line,” Shapiro said.

The 2015 complaint alleged Chesapeake had cheated landowners over drilling leases, making industry-friendly deals in the boom's early years and then deducting post-production expenses from royalty checks.