Lawsuits filed against Chesapeake and others in South Texas for breach of contract

In the district courts of McMullen, Dimmit, and La Salle counties, Texas, legal petitions have been filed against Chesapeake Exploration LLC and others for breach of contract. Chesapeake Energy Corp. is the parent company of Chesapeake. Other defendants include Nexen Energy Holdings USA Inc., along with other subsidiaries of the Chinese National Offshore Oil Co. (CNOOC), which previously purchased a 33% piece of Chesapeake's Eagle Ford shale position.

The legal consortium alleges that the defendants have materially breached contractual obligations resulting in underpaid royalties under lease agreements for wells on approximately 30,000 acres in the Eagle Ford shale play.

The petitions were filed jointly by law firms of Christian, Smith and Jewell LLP of Houston; Circelli, Walter & Young PLLC of Fort Worth, Texas; and Langley & Banack Inc. of San Antonio, Texas.

In all three cases, the plaintiffs leased their land in exchange for an agreed-upon royalty based on a percentage of oil, minerals, and natural gas produced. The defendants purchased the lease rights from leasing parties and assembled a large acreage for its exploration in the Eagle Ford play. The petitions allege that, over the course of years, the defendants have breached these lease agreements several different ways including: deducting costs from royalty payments in contravention of the terms of the leases; failing to pay royalties that are no less than fair market value of the crude oil; using improper volumes for their royalty calculations; and deducting third-party costs that were never actually incurred to gather, compress, treat, transport, or sell gas from the plaintiffs' leases. 

"We believe that these duplicitous techniques which resulted in underpaid royalties constitute a pattern of behavior by the defendants," stated attorney John Petry of Langley and Banack. 

Attorney George Parker Young, of the Circelli, Walter and Young firm, said, "We are preparing additional royalty underpayment lawsuits against Chesapeake and CNOOC for other clients having Eagle Ford leases, and these leases cover tens of thousands of acres, and many, many wells." 

The Circelli, Walter and Young firm is already co-counsel in more than 400 lawsuits filed for over 13,000 clients against Chesapeake over its royalty underpayment practices in the Barnett shale play. These are pending in state court in Fort Worth, Texas.

In 2015, and again this year, the Texas Supreme Court ruled that Chesapeake owed a family in Fort Worth at least $1 million for wrongly subtracting costs from its royalty checks from wells in Tarrant and Johnson counties. In other Barnett shale play cases involving unpaid royalties from natural gas production, a group of lessors that included the Bass family and other prominent Fort Worth families, as well as institutions, have settled with Chesapeake Energy for undisclosed amounts.

Attorney James "Wes" Christian, of Christian Smith and Jewell LLP, commented, "Chesapeake and the other defendants in this case thought they could get away with cheating our clients, most of whom are multi-generational ranchers and hardworking people. We're here to tell them they can't and they won't. We have assembled a team of lawyers and experts of remarkable depth to ensure that doesn't happen. We won't stop until our clients have received every penny they are due."

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. 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.


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