Skip to main content

See also:

Pennsylvania landowners sue Chesapeake Energy for $5 billion

OIl and gas producer facing a $5 billion class action lawsuit
OIl and gas producer facing a $5 billion class action lawsuit
Getty common use

On Wednesday formal notice of record was released of a $5 billion class action lawsuit having been filed against Chesapeake Energy and its operating subsidiary Access Midstream Partners charging the nation’s second largest oil and gas company for damages related to “racketeering, unjust enrichment and unreasonable fees” in the United States District Court for the Middle District of Pennsylvania. Lead plaintiff in the lawsuit is the Seussenbach Family Limited Partnership with the compliant reading as: "Since at least 2010 Chesapeake engaged in unlawful conduct to improperly extract billions of dollars in royalties owed to plaintiffs and other lessors by artificially manipulating and deducting from royalty payments the cost of 'marketing,' 'gathering,' and 'transporting' natural gas. The marketing, gathering and transportation deductions at issue in this action were both unreasonable and inflated." Calls from Examiner.com regarding the lawsuit to Chesapeake Energy were not returned. Patrick Henderson, Gov. Corbett’s Deputy Chief of Staff and Energy Executive was unavailable for comment at the time of the posting of this report. Details of the lawsuit can be found at, The Sussenbach Family Limited Partnership et al v Access Midstream Partners, LP et al.

Pennsylvania Marcellus Shale landowner’s frustration and anger have been growing toward Chesapeake Energy over the last several years in what many of the landowners believe are unfair and unreasonable financial deductions to ongoing monthly royalty check payments from Chesapeake Energy for the value of the natural gas being produced and shipped from the landowners properties. Expense deductions from royalty payments are normal in the industry for production, transportation along with treatment and processing of natural gas as it leaves individual landowner properties and is shipped into major natural gas transportation systems. However, the class action lawsuit filed this week is based on Pennsylvania’s Guaranteed Minimum Royalty Act which maintains landowners must receive a minimum royalty payment of 12.5%. It charges that, “These deductions were inflated, improper, completely unrelated to the 'cost of services,' did not serve to enhance the marketability of gas, and instead, merely served to enrich the co-conspirators who devised the scheme," the complaint states.” The class action lawsuit comes after several years of Pennsylvania landowners complaining to Chesapeake Energy and to the Corbett Administration about what they believe to be unreasonable royalty payment deductions. Many landowners complained in the beginning their royalty checks appeared in line with what the company said it would pay but as it fell deeper and deeper into financial trouble, check amounts began to decrease noticeably.

Governor Corbett went as far as to send an official Commonwealth of Pennsylvania formal letter to the CEO of Chesapeake Energy, Robert “Doug” Lawler, that stated the Governor was increasingly concerned about the complaints of its citizens and for the company to pay royalties in good faith under existing landowner leasing arrangements for drilling rights. Many of these complaints started after 2011 when Chesapeake Energy, under the direction of its now ousted ex-CEO Aubrey McClendon, began aggressively selling off large parts of the company’s operating assets in order to raise desperately needed cash as it struggled with an estimated debt in excess of $20 billion including volumetric production payments. One of the company’s largest asset sales was heralded in 2011 when Chesapeake Energy announced it was selling off its natural gas pipeline system to an entity called Access Midstream even as Chesapeake Energy retained ownership interest in the new entity.

The Suessenbach class action federal lawsuit charges that "defendants, under the guise of Chesapeake's subsidiaries' agreements with lessors, exploited deductions language from the lease agreements to, among other things, shift repayment of Chesapeake's off-balance sheet loan from Access Midstream to the lessors." needed cash quickly to service its outstanding debt and fund its operations. The lawsuit further states, "On Aug. 3, 2010, Chesapeake formed Access Midstream and began spinning off its midstream assets, which included its natural gas gathering and intrastate pipeline operations, through a series of sales to Access Midstream in order to fund its ongoing operations. During this time, Chesapeake was using its subsidiaries to artificially inflate deductions charged to lessors." The lawsuit also points out how Access Midstream involves a number of former and current Chesapeake officers and relies heavily on Chesapeake employees in conducting its business and paying Chesapeake Energy for these ongoing services. Financial basis of the class action lawsuit’s claim is stated in complaint as Chesapeake Energy as having, "pledged to pay Access enough in fees to repay the $5 billion plus a 15 percent return on its pipelines” which the lawsuit argues is the amount equal in damage to the class action lawsuit members.

Mr. Robert Schaub with Rosenn Jenkins and Greenwald of Wilkes-Barre and lead counsel for the Sussenbach Family class action litigation was unavailable today for public comment when contacted by Exmainer.com.