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WSJ: Chesapeake accused of underpaying gas royalties

  • WSJ examines Chesapeake Energy's (CHK -0.7%) deepening dispute with Pennsylvanians over royalty payments to those with CHK wells on their land.
  • Pennsylvania requires oil and gas drillers pay royalties of at least 12.5%, but lets drillers deduct costs for transporting, processing and marketing - and CHK appears to take a much more aggressive approach to those deductions than other energy companies operating there, including Anadarko (APC) and Statoil (STO).
  • "I'm paying them to take my gas," says one landowner who claims his royalties don't cover the added taxes for owning commercial property.
  • The public outcry has grown so loud that Pennsylvania Gov. Corbett, who has received campaign contributions from the company, wrote an open letter last month asking the state attorney general to investigate.
Comments (7)
  • zebra114
    , contributor
    Comments (251) | Send Message
     
    Don't forget all the mechanic's liens on properties in PA, thanks to $CHK. Instead of being a boon to landowner's, it's become a liability to lease with them.
    12 Mar, 10:42 AM Reply Like
  • bessieo4890
    , contributor
    Comments (6) | Send Message
     
    Perhaps the Pa AG should check Enervest , they claim to have 27,000 wells ,and walk in lock-step with Chesapeake.
    12 Mar, 11:15 AM Reply Like
  • deercreekvols
    , contributor
    Comments (5397) | Send Message
     
    NY Governor Cuomo looking like he knew what he was doing...almost a prophet...(sarcasm intended)...so glad the citizens of NY were not allowed to decided for themselves...Thank you Uncle Andrew!
    12 Mar, 12:05 PM Reply Like
  • Fracjob
    , contributor
    Comments (1146) | Send Message
     
    "I'm paying them to take my gas" The negative CHK publicity continues. Please provide facts, along with all financial accounting.
    12 Mar, 03:02 PM Reply Like
  • mythoughts
    , contributor
    Comments (154) | Send Message
     
    Those landowners would not be getting any thing for their otherwise useless property if the oil and gas companies were not there. This is typical farmer's whining: always wanting more from either the oil companies or the government.
    12 Mar, 04:34 PM Reply Like
  • BTMnyman
    , contributor
    Comments (5) | Send Message
     
    As a leaseholder... PA State law requires leaseholders to receive a minimum 12.5% in Royalties from any oil or gas produced "at the wellhead".

     

    Chesapeake wrote leases that guaranteed 12.5% from the wellhead- less their cost for transportations, taxes, processing etc. (contrary to PA law).

     

    The gas in Bradford county is "Dry Gas" and,as such, doesn't require much in the way of processing. it goes directly into the adjacent Marcellus TGP-Z4 Marcellus pipeline.

     

    So, with lease in hand, and regardless of these facts, Chesapeake deducts large percentages in processing and transportation costs. A simple example might help further: After Chesapeake deducts transportation and processing costs a leaseholder might end up with 7% in actual royalties instead of the 12.5% required by law. they think nothing of back-dating the deductions. In Early December they back dated to 2009-2010 additional deductions. The result was no royalties for three months as they deducted from current production.

     

    A few other head fakes employed:

     

    Divide & conquer: Chesapeake has several joint venture partners (Statoil, Anadarko, Mitsui and "Aubrey's" Larchmont) who send separate statements and checks (depending on their percentage of the well) to leaseholders. They too make large transportation and processing fees deductions and back-date deductions. So a landholder will get four separate checks from one well, with different prices paid for gas and different deductions for transportation and processing.

     

    Tax reporting: 1099's are reported separately (four separate 1099s CHK, STA, Anadarko, Mitsuti), without allowing for deductions. For example: say Chesapeake paid you 1k for the year. The 1099 you receive from them may say 1,4k in income (the actual amount plus the deductions they took out)

     

    In my opinion, These tactics are an obvious attempt to divide and conquer the leaseholders. So far it's worked very well...

     

    I have no position in any of the companies mentioned, nor do I intend to enter any position in the immediate future.
    13 Mar, 12:02 PM Reply Like
  • mcdonaldfive
    , contributor
    Comments (32) | Send Message
     
    I'm looking forward to understanding the accounting behind the claim. Perhaps the issue is the state taxes are too high for commercial property and PA is taking a larger cut than they deserve. There was no mention how PA's tax rate for producing property compares to other states. Then there are pipelines - or the lack thereof. What is the situation with midstream assets in the State of Pennsylvania and has the State hindered or promoted their construction? I'm just really suspicious that when these disputes get aired in the press that the real problem is not where it appears to be. Blame is being assigned by using the power of the pen - responsibility may lie elsewhere.
    12 Mar, 05:44 PM Reply Like
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