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Chesapeake v. Hyder – Royalty Owner Wins Big

by Kirk Eggleston on July 17, 2014

Recently, a San Antonio court of appeals affirmed the decision of a Tarrant County judgement against Chesapeake Exploration, LLC, awarding royalty owners approximately $700,000 for deducting unauthorized post-production/post well-head costs.

The plaintiff (Hyder) claimed Chesapeake deducted improper fees and interests from the royalty, based on specific language in the lease agreement. The Hyder’s royalty clause was not a standard lessee-form lease. It said the following:

“The royalty reserved herein by Lessors shall be free and clear of all production and post-production costs and expenses, including but not limited to, production, gathering, separating, storing, dehydrating, compressing, transporting, processing, treating, marketing, delivering, or any other costs and expenses incurred between the wellhead and Lessee’s point of delivery or sale of such share to a third party. …In no event shall the volume of gas used to calculate Lessors’ royalty be reduced for gas used by Lessee as fuel for lease operations or for compression or dehydration of gas.”

 Chesapeake is currently seeking review of the decision by the Texas Supreme Court.

 Below are links to further reading material on the case:

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Natural Gas Production Soars in U.S.

by Kirk Eggleston on June 26, 2014

Natural gas production in the U.S. was the best it’s ever been in April of 2014 according to estimates from Bentek Energy, an energy market analytics company based in Denver, CO. Production for the onshore Lower 48 last month averaged 67.3 Bcf/d, which was about .5 Bcf/d higher than March of 2014 production levels of 66.8 Bcf/d.

In 2014, Bentek predicts that average U.S. production for natural gas will be 67.5 Bcf/d, due in part to a higher overall price environment for producers and continued growth in liquids-rich plays like the Eagle Ford Shale and dry gas plays like the Marcellus Shale.  Currently, natural gas is trading at 4.53/mmbtu, which is a higher price point than some analysts expected due to the increased production volumes.

Jack Wiexel, Bentek director of energy analysis, said in a company statement,”natural gas producers are enjoying a relatively robust price environment despite substantially increased output the past two months.”

Royalty Owner Impact

Natural gas commodity prices are measurably higher than they were two years ago when natural gas fell to around $2/mmbtu. At that price point, many natural gas wells became unprofitable. However, with the increase in overall U.S. natural gas production, thanks in large part to the tight oil and shale gas revolution, and the Energy Information Administration (EIA) predicting record breaking production through October, many royalty owners can expect an increase in their royalty checks.

Record Low Storage Levels of Natural Gas

Despite the record production, the natural gas market is facing record low storage levels. Even with the anticipated production increases, total Lower 48 end-October inventories in 2014 would still be at their lowest level since 2008.

Wiexel said, “U.S. consumers need the production levels seen in March and April to continue throughout the summer to avoid high prices in the winter.”

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State of Louisiana Seeks to Claim Privately Owned Lands

May 23, 2014

A dispute over mineral rights ownership, originating in DeSoto Parish, LA, has now evolved into a sticky situation that could potentially impact thousands of Louisiana mineral owners. The issue specifically centers around the state’s attempt to claim ownership of certain tracts of privately owned land that have previously been traversed by navigable waterways. In January […]

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Texas Royalty Owners Have the Right to Request Information from Operator

April 29, 2014

Royalty owners living in Texas receive a mandatory letter annually from operators notifying them that they can request certain information. Section § 91.504 of the Texas Natural Resources Code provides royalty owners the right to request information about itemized deductions, the heating value of the gas, and the identification number for the lease, property or well. […]

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Chesapeake Mineral Owners See Large Deductions on Royalty Checks

March 17, 2014

Chesapeake Energy has come under increased scrutiny in recent months for allegedly defrauding Pennsylvania mineral owners. The Wall Street Journal reported in March 2014 that some mineral owners are seeing deductions of more than 35% on their royalty checks! The publication compared the royalty checks of Pennsylvania mineral owners and found that Chesapeake’s lessors had […]

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Land Owners Seeking Public Use of CO2 Pipelines in Mississippi – Video

February 18, 2014

Land owners in Mississippi are seeking public access to CO2 pipelines controlled by Denbury. The two pipelines supplying oil fields in the state are 50% utilized and land owners believe shared use could create additional value for themselves and the state. The pipelines were built employing eminent domain, but there is only one owner and […]

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Kansas Could Inact Limits on the Number of Oil Wells on a Property

February 17, 2014

A state senator in Kansas has introduced a bill that could limit the number of oil wells drilled on property in the state. A hearing to discuss the bill has not been scheduled and proposal might not be addressed until the next legislative session. The problem is magnified by surface owners that do not own […]

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ND Supreme Court Rules Missouri River Shoreline Minerals Are Owned by the State

January 29, 2014

The North Dakota Supreme Court has ruled Missouri River mineral rights found below the shoreline are owned by the state. You might not think this is significant, but the prize is about 25,000 acres and $140 million oil companies have set aside in bonuses and royalties. Development in the Bakken makes each acre significant. Waterfront […]

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Oil Export Ban Is Hurting Your Royalty Checks!

December 12, 2013

The Oil export ban is in the news more this year than we have seen in decades. The main reason is production has increased 60% or 3 million b/d in the U.S. since 2008. The U.S. is producing more oil today (almost 8 million b/d) than we have as a nation in more than 25 […]

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Allocation Wells In Old Oil & Gas Fields In Texas

June 25, 2013

Have you seen an “Allocation Permit” or been contacted about participating in an “Allocation Well”? Allocation wells are becoming more common across Texas where old fields were developed with conventional techniques and units were formed that cover all depths. Those old producing units might not have the best shape for a long horizontal lateral. The […]

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