Chesapeake loses court battle

Wooden gavel
Source: DollarPhotoClub

Wick Phillips earned another victory in a five year legal battle with Oklahoma-based energy giant Chesapeake Energy. On June 12, the Supreme Court of Texas upheld a royalty owner’s judgment against Chesapeake for approximately $1 million in royalties, interest and attorney’s fees.

According to court documents, the dispute began in 2006 when Chesapeake acquired the leasehold rights to approximately 1,000 mineral acres in the Barnett Shale. According to the Court’s opinion, although the lease agreement guaranteed “a perpetual, cost-free (except only its portion of production taxes) overriding royalty,” Chesapeake deducted post-production expenses.

In a 5-4 decision, the Court held that Chesapeake violated lease terms and improperly deducted post-production costs from overriding royalty payments owed to the royalty owner. In the Texas Supreme Court’s opinion, Chief Justice Nathan Hecht wrote, “Generally speaking, an overriding royalty on oil and gas production is free of production costs but must bear its share of post-production costs unless the parties agree otherwise. The only question is whether the parties’ lease expresses a different agreement. We conclude that it does.”

The Wick Phillips’ team, led by David Drez, represented the royalty owners at trial in 2012 and through Chesapeake’s appeals before the San Antonio Court of Appeals and Texas Supreme Court. Wick Phillips argued the case before the Texas Supreme Court on March 24, 2015. The case has been widely watched as oil and gas royalty litigation continues to increase in Texas and across the country.

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