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Chesapeake v. Hyder – Royalty Owner Wins Big

by Kenneth E. DuBose 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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