Settlement reached in natural gas company dispute with royalty owners

More than 100 people due gas royalties in Bradford and Susquehanna counties will benefit from a class action lawsuit and settlement reached recently with Chesapeake Energy, a natural gas producer.

The settlement, reached recently in U.S. Middle District Court before Judge Malachy Mannion, was the proper venue for such action, according to state Sen. E. Eugene Yaw, R-Loyalsock Township.

“This settlement clearly demonstrates that the judicial system is the proper venue for resolving contractual disputes,” Yaw said in a statement. The court system, not the legislature, should resolve contractual disputes, in particular those involving the deduction of post-production costs from varying leaseholder agreements, he said.

The settlement was between the gas company and Demchak Limited Partnership and had to do with deduction of post-production costs that resulted in royalty payments less than the guaranteed minimum, according to court documents.

The case involved situations where post-production costs were deducted under a legally inserted clause despite the lease agreement explicitly prohibiting the deduction of those costs.

Chesapeake Energy has been criticized in recent months for using something known as the ‘market enhancement clause’ to make deductions from the royalty payments, according to Yaw.

“Under the Constitution, the legislature cannot alter the existing contracts of thousands of leaseholders,” Yaw said. “I firmly believe in less government involvement and asking the legislature to rewrite thousands of contracts is not only unconstitutional, but runs contrary to that belief. I believe there is a way we can protect those landowners, and not interfere with current contract language.”

Legislators in the House of Representatives have introduced a measure that would address other leaseholder concerns by clarifying that the deduction of post-production costs from unconventional wells may not result in royalty payments less than the guaranteed minimum, according to Yaw.

Yaw said he, too, has proposed legislation protecting landowners from retaliatory conduct by a gas company if a landowner challenges a natural gas company’s activities.

In addition to that legislation, Yaw said he has been working on another bill that will provide tools to landowners to obtain more detailed accounting information regarding gas pricing, well income and post-production costs.

“While the legislation introduced faces some constitutional hurdles, I believe my legislation would pass any constitutional questions and address the concerns of frustrated leaseholders,” Yaw added. “As I’ve said before, there is certainly value in having multiple approaches to solving this issue.”