Eagle Ford mineral owners sue Chesapeake for royalty underpayments

Members of South Texas' Dilworth family and related owners of mineral rights located on three of the family's Texas ranches are suing Chesapeake Energy Corp. (NYSE: CHK) and the other working interest owners for more than $9.4 million in alleged unpaid or underpaid royalties. The plaintiffs have also sought a declaration as to the termination of the three leases in question.

The lawsuit filed in state district court in McMullen County accuses Chesapeake of breach of contract and other claims involving oil and gas leases on Dilworth family ranches covering about 15,900 acres and including 85 producing wells in the heart of the Eagle Ford shale play.

"As oil prices fall, we've seen more sensitivity to post-production costs, price selection, volume measurements, and other lease-administration issues,” said Daniel Charest of Burns Charest LLP in Dallas, who represents the plaintiffs. “This case is just one of many that fit the same description. Based on Chesapeake's conduct, my clients are within their rights to terminate these leases, and they're prepared to do just that if necessary."

The lawsuit alleges that Chesapeake paid insufficient royalties based on contractual pricing and production volumes, and violated specific lease terms prohibiting deductions for production costs. The plaintiffs also say that the company failed to deposit the full royalty payments into escrow in the event of a dispute. Some of the alleged breaches could lead to termination of the leases.

The case is Dilworth v. Chesapeake Operating, LLC, et al., No. M-16-0011-CV-C, in the 343rd District Court.

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