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Chesapeake Energy Corporation's 50 acre campus is seen in Oklahoma City, Oklahoma, on April 17, 2012. Steve Sisney via NewsCred

Gas royalties fraud investigation coming to a close

Kathleen Kane, Pennsylvania State Attorney General, says her investigation into allegations of Chesapeake Energy’s gas royalty payments will soon come to an end.

It began a year ago when former Pennsylvania Governor Tom Corbett and state Senator Gene Yaw, R-Bradford, requested that Kane investigate Chesapeake Energy after leaseholders alleged the company wasn’t paying them their full gas royalty money. Kane commented on the hard work that has gone into the investigation:

Both the Anti-Trust and Bureau of Consumer Protection is working very hard … They’ve conducted hundreds of interviews with landowners. It took a little bit longer than we may have hoped.

Kane was unable to give the current status of the case to a Senate Appropriations committee on Tuesday, but ensured that it is coming to an end.

Yaw expressed his excitement in Kane announcing the investigation is near the end:

I was very pleased to hear that the Attorney General’s investigation will be wrapping up soon … My office has corresponded directly with General Kane since last year and sent over 50 leases on behalf of my constituents to her office for her consideration. This is a huge issue for people I represent.

Chesapeake has been accused and questioned for cheating leaseholders of gas royalty money more often than other companies. It has also been accused of selling gas to itself, misreporting gas production data and breaching lease terms that clearly hinder the fees.

A perfect example of Chesapeake’s skimming ways occurred during 2010 in Fort Worth, Texas, when the Hyder family filed a lawsuit against the company for improperly deducting money from royalty payments and breached terms within their drilling lease agreement.  In 2012, State Judge Melody Wilkinson ruled that Chesapeake did violate terms of the Hyder’s lease and awarded the family its unpaid royalties.  This case is one of several lawsuits that have been filed against Chesapeake in the Barnett Shale region.

The same situation happened to retired Pennsylvania dairy farmer Don Feusner.  He had noticed that his monthly gas drilling royalty checks were decreasing to only a fraction of what their original value was.  In December of 2012, his payment was $8,506. By the time April came around, his payment had dropped to $1,609, even though his wells were producing the same amount of natural gas. Chesapeake withheld nearly 90 percent of Feusner’s share of the drilling income due to “gathering expenses.”  It is no surprise that more and more leaseholders are filing suit in Pennsylvania against the company.

By state law, gas companies are required to pay a minimum of 12.5 percent royalty to landowners who lease their property for oil and gas drilling.  Drillers are allowed to withhold some of the payment in order to make the product marketable. These types of charges include:

–compression deduction: a charge for compression of gas to a sufficient pressure to enter into a gathering or transportation pipeline

–dehydration deduction: a charge for dehydration of gas, meaning the removal of water vapor from natural gas

–gathering deduction: a charge for pipeline gathering of a product to a common sales point

–processing deduction: a charge for expenses related to further refinement of high BTU natural gas

–treating deduction: a charge for removing impurities such as co2, nitrogen, or hydrogen sulfide from a hydrocarbon stream

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