Appeals court sides with Chesapeake on royalties

[Bob Of Burleson]

By Max B. Baker
maxbaker@star-telegram.com

Barnett Shale landowners fighting to keep Chesapeake Energy from deducting post-production costs from their royalty checks were dealt a potentially serious blow by two recent federal appeals court decisions, which stated that the gas-drilling giant is allowed to do so under the terms of their leases.

The 5th U.S. Circuit Court of Appeals in New Orleans said Chesapeake can subtract costs in two cases stemming from disputes over royalties on leases in Tarrant and Johnson counties. One of the lawsuits involved two individual leases, while the other case was seeking to initiate class-action litigation.

While a federal court’s ruling technically is not binding on state district court judges presiding over similar lawsuits, attorneys say the decisions by the three-judge panel may be influential since they based their opinions on a crucial Texas Supreme Court decision from almost 20 years ago.

“It really hurts the ability to have one of these cases,” said Robert O’Boyle, the Austin attorney representing landowners in one of the cases. “They [the federal judges] don’t care how hard [landowners] tried to contract around this. Big oil wins.”

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