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Shale Boom Royalties Come Back to Bite Chesapeake

Chesapeake Energy Corp. has agreed to pay nearly US$53 million dollars to settle a suit over unpaid royalties in north Texas, according to Oklahoma state media reports.

A total of US$29.4 million in cash will be paid to the plaintiffs in the class-action suit and another US$10 million will be distributed through a promissory note payable in three years. French Total SA, Chesapeake’s joint venture partner, agreed to pay US$13.1 million on top of its partner’s offerings.

“We are pleased to have reached a mutually acceptable resolution of this legacy issue and look forward to further strengthening our relationships with our royalty owners,” Gordon Pennoyer, a spokesperson for Chesapeake said in a statement carried by the Oklahoman.

Related: OPEC Head Calls for $65 Oil

At least 90 percent of the plaintiffs have to approve the deal for the money to be split and distributed. If adopted, the agreement would end the lawsuit lodged by landowners in Tarrant and Johnson counties. The plaintiffs said the company underpaid royalties for natural gas extraction on their land in the Barnett Shale by several hundred million dollars.

Chesapeake has been accused of deducting post-production costs from the royalty payments, which the plaintiffs say is against the terms of their contract with the company.

“After three weeks of good-faith mediation led by a former federal judge, the MDL (multi-district litigation) No.1 case has been resolved to our satisfaction, though it is subject to our clients' written approval,” Chesapeake’s law firms, McDonald Law Firm and Circelli, Walter & Young, said in a statement. "We are pleased that we have achieved a mutually acceptable global settlement and greatly appreciate the constructive approach taken by Chesapeake's current leadership to resolve this matter.”

Related: Is OPEC A U.S. National Security Threat?

Another case in Fort Worth, Texas, led Chesapeake to agree to a US$6 million settlement for similar violations with 260 different lease agreements, though the city’s council will meet late Tuesday to suggest amendments to the proposal.

In recent months, the company has settled at least 13 more royalty-related lawsuits in the United States.

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By Zainab Calcuttawala for Oilprice.com

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