Chesapeake Energy Corp. has allegedly been depriving Pennsylvania landowners of all the natural gas royalties to which they are entitled, according to a federal class-action suit.
Lead plaintiffs Ed and Kathleen Ostroski, of Bradford County, also name as defendants Chesapeake subsidiaries Chesapeake Energy Corporation LLC and Chesapeake Appalachia LLC.
“This is a classic case of corporate greed run amok,” said plaintiffs’ attorney William R. Caroselli, whose Pittsburgh-based firm filed the suit in U.S. District Court for the Middle District of Pennsylvania.
According to Caroselli, lease terms stipulate that the leaseholders are entitled to a portion, usually one-eighth, of revenue realized from the sale of the gas each month after post-production costs are subtracted.
But Caroselli claims Chesapeake is using several tactics to “unfairly and illegally” reduce payouts.
“Instead of honoring their mutually agreed upon lease terms, Chesapeake is cheating Pennsylvania property owners out of money to which they are fully entitled,” Caroselli said.
Gordon Pennoyer, a spokesman for Oklahoma-based Chesapeake, said the company declined to comment.
The suit alleges that Chesapeake deprived landowners of their due by:
• paying the royalties using figures lower than the revenue paid by the buyer;
• not paying royalties on the proceeds of derivative contracts,
• deducting costs incurred after Chesapeake Appalachia no longer held title to the gas;
• deducting gathering costs that were inflated through collusion and self-dealing;
• deducting transportation costs that were fraudulent in their amounts;
• deducting marketing fees that were never incurred;
• and by calculating the royalties on a portion of the gas without determining either the price paid or the costs deducted.
“These property owners provided Chesapeake with access to their land in exchange for a share of the revenue generated by the natural gas drilling,” Caroselli said.
“Instead of living up to their end of the deal, Chesapeake is trying to take advantage of these people,” he added.