Chesapeake faces suit EnergyUnderpayment claimed for royalties owed to state agency
BY JULIE BISBEE
Published: November 19, 2008
The state commission that manages federal trust land and assets has filed a lawsuit against Oklahoma City-based Chesapeake Exploration, saying the company is not paying the proper amount of royalties to the state commission.
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The lawsuit, filed Friday in Roger Mills County, where some of the wells are located, alleges Chesapeake is deducting the cost of gathering and processing oil from the royalties paid to the Commissioners of the Land Office, also known as the School Land Trust.
Several oil and gas companies have wells on trust land managed by the Commissioners of the Land Office. The office manages federal trust land and assets across Oklahoma. Profit from mineral leases and land sales help fund public education.
The petition filed in Roger Mills County District Court claims Chesapeake owes the state commission additional money generated from the sale of oil and gas collected from wells on land managed by the School Land Trust.
It also argues that post-production costs should not be deducted from royalty payments.
"Defendants have taken ... actions designed to unjustly enrich defendants and to increase defendant’s profits at the expense of the CLO,” according to the petition.
Officials from Chesapeake declined to discuss the lawsuit.
"We generally don’t discuss active legal issues except in the proper venue, where we will effectively defend the company’s position,” said Henry Hood, general counsel and senior vice president of land and legal for Chesapeake.
The lawsuit doesn’t say how much money the Commissioners of the Land Office believes it is owed by Chesapeake, but does say the amount is more than $10,000, court documents show.
There are 5,000 wells on land managed by the Commissioners of the Land Office, according to figures from the commission’s mineral division. Since 1987, the office has audited accounts of oil lease holders to ensure the state commission is getting the correct royalties, said James Dupre, an attorney for the office. Most companies comply with regulations, he said.
Oil and gas income made up about 69.2 percent of the total amount of money the office had to distribute to common education in 2007. Oil and gas proceeds allow the commission to distribute roughly $77 per public school student, according to commission figures.
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