TOWANDA – Representatives from the Pennsylvania Attorney General’s Office welcomed a large crowd inside the Towanda High School auditorium Tuesday evening, and then many others inside the Bradford County Courthouse Wednesday as they helped landowners with questions related to the Chesapeake Energy settlement over the deduction of post-production costs from royalty payments.
Chief Deputy Attorney General Tracy Wertz said although the $5.3 million settlement wasn’t the most ideal outcome due to Chesapeake’s filing for bankruptcy, the Attorney General’s Office was fortunate to secure some sort of resolution for landowners’ claims before the Pennsylvania Supreme Court supported a preliminary appeal from the natural gas company.
“We could not go forward with our claims under the Unfair Trade Practices statute (and market allocation claims) because they determined that landowners were sellers of natural gas mineral interests and the Unfair Trade Practices and consumer protection laws are meant to only protect buyers,” Wertz said about the state Supreme Court’s decision.
According to Wertz, the office first came up to Bradford County to meet with landowners in 2014 about post-production deductions, which were leaving some with zero or negative balances.
In December 2015, the Attorney General’s Office filed its lawsuit against Chesapeake Energy through the Bradford County Court of Common Pleas.
“We alleged that Chesapeake engaged in unfair and deceptive business practices in securing natural gas leases and improperly paying royalties to Pennsylvania royalty owners, and we alleged that that violated the Unfair Trade Practices and Consumer Protection Law,” Wertz explained.
The lawsuit was amended to add Anadarko Petroleum in 2016, with allegations that Anadarko and Chesapeake worked together to target different markets instead of competing against each other.
Preliminary objections to the lawsuit were denied in both the Bradford County Court of Common Pleas and Commonwealth Court. Then, while the appeal was pending in the Pennsylvania Supreme Court, Chesapeake filed for bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas, Wertz explained.
“That kind of paused the Supreme Court’s appeal with Chesapeake and it couldn’t go forward under bankruptcy law,” Wertz said.
The Attorney General’s Office then negotiated a settlement with Chesapeake that was announced Feb. 9, which was followed by the decision from the Pennsylvania Supreme Court upholding Chesapeake’s appeal.
Under the settlement, landowners have until Nov. 29 to elect how they wish to receive royalty payments moving forward or they will be assigned a default selection. Those with Market Enhancement Clauses or Ready for Sale or Use Leases are able to choose between being paid the higher of a local, publicly listed in-basin price without any deductions or net back price with deductions each month, whichever is higher, or just receive the netback price with deductions as they have up to this point. Those with non-MEC leases have an opportunity to chose between the in-basin price without deductions or the netback price with deductions.
Chesapeake will also stop taking deductions from leases that expressly prohibit deductions if notified, as outlined in the settlement.
In addition, the settlement sets up an ombudsman – Martindale Consultants – to monitor the terms of the settlement and help landowners going forward.
The Attorney General’s Office is currently working to verify information on a list of landowners who will be receiving a portion of the $5.3 million in restitution. Wentz said they plan to have checks sent out before the end of the year.
“It is small,” Wertz said about the restitution. “A lot of the reason for that was because Chesapeake was in bankruptcy and bankruptcy is a place that really favors the companies that are in bankruptcy because they want them to emerge as a company and, unfortunately, all of the claims we had for monies that were owed to people didn’t get the return we had hoped, but again that was because of the bankruptcy process.”
Bradford County Commissioner Chairman Daryl Miller was thankful for the Attorney General’s Office’s visit to Bradford County.
“There’s obviously a lot of questions that landowners have,” Miller said. “This has been a long process and it’s not over yet.”
Wertz said they were answering calls during their trip to Bradford County and will continue during the weeks ahead. Those with questions can contact settlement administrator Epiq Global at (855) 907-2082 or firstname.lastname@example.org; the Attorney General’s Office at (717) 787-4530 or Antitrust@attorneygeneral.gov; or visit the website www.PAroyaltysettlements.com.
Wertz thanked the Towanda Area School District and Bradford County for providing a venue where they could help people, and also residents themselves who helped the Attorney General’s Office start its lawsuit.
“That was instrumental for us learning about the conduct that was ongoing in the community and gave us the ability to bring legal action,” Wertz said. “I want to thank all of you for sticking with us all of this time.”