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How Oklahoma Royalty Owners Recovered $119 Million from Chesapeake Energy
If you own mineral rights associated with a piece of property despite not owning the surface rights, you have the option to lease your interest for compensation. And, of course, the royalties you receive should be directly tied to the size of your ownership, minus anything as agreed upon in a contract.
This simple concept, however, was at the center of a lawsuit recently decided in Beaver County, Oklahoma. Here, a drilling company associated with Chesapeake Energy Corp. allegedly deducted significant amounts from royalties for non-related expenses, and, as such, was ordered to pay nearly $120 million to the plaintiffs.
Background of the Case
The case focuses on Chesapeake Operating LLC, a unit of Chesapeake Energy Corp. that has leased mineral rights throughout Oklahoma. Originally, a lawsuit was filed in 2010 by John Fitzgerald, a Kansas resident who believed that he was underpaid royalties owed to him from his Oklahoma interests. Shortly thereafter, Fitzgerald sought class-action certification, which was granted in 2013.
The allegations of underpayment stem from expenses deducted by Chesapeake from royalties for marketing, compression, processing, and other services. The underpayments allegedly took place over the course of 10 years, from 2004 to 2014. But the deductions of said expenses may have ultimately been due to a confusion over who bears these burdens; specifically, in Mittelstaedt v. Santa Fe Minerals Inc., the Oklahoma Supreme Court decided that oil and gas lessees are responsible for making the gas marketable, and not the mineral rights owners. Here, however, the Court chose not to define this term, leading to a variety of different interpretations.
Effects of the Case
In this most recent case, Chesapeake’s actions proved to be against the law, and they have been ordered to pay $119 million in compensation, which will go to both plaintiffs and their attorneys. And this may have a significant impact on the future, as well; numerous class-action lawsuits have been filed in Oklahoma recently alleging royalty underpayments by drilling companies, so this recent decision may certainly act as a beacon of hope for anyone who feels they may not have been awarded what they truly deserve.
Ultimately, if you own mineral interests, it is in your best interests to speak with a professional who can help you decide the best course of action. Contact Phillips Energy Partners for a free property evaluation and have a trusted mineral rights consultant in your corner.