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Language in drilling contracts for energy company causing a stir

There's no doubt that the sale of energy commodities has become a huge business over the last few years. With prices on the rise, many investors want to strike while the iron is hot. But because large deposits of energy commodities such as crude oil and natural gas are found under the land of private landowners, these companies must sign contract agreements that benefit both the company and the landowner.

But as many people here in Texas will tell you, if these business contracts aren't worded properly or one party interprets the contract differently than the other, companies can have huge legal messes on their hands that can take significant time before they're properly sorted out.

Such may be the case for Oklahoma-based Chesapeake Energy Corp., which could face litigation as a result of numerous complaints from landowners in Pennsylvania. The animosity stems from the wording in the lease agreements to drill for natural gas on the owner's land. The wording allows Chesapeake Energy Corp. to take a portion of a landowner's royalties by charging for "post-production costs." It's a move landowners are saying is against the law. Chesapeake Energy Corp. disagrees.

Complicating the dispute is the fact that the federal government deregulated the gas market in the late 1980s. As a result, energy companies such as Chesapeake Energy Corp. and landowners would be responsible for sharing the cost of transporting the gas. This appears to be the crux of Chesapeake Energy Corp.'s argument against the complaints, though they have declined to comment on the issue at this time.

While this case does not appear to have escalated to arbitration, readers here in Texas know that it could. It's definitely a situation many businesses here hope they never find themselves encountering.

Source: E & E Publishing, LLC, "Landowner disputes with Chesapeake hit a boiling point in northern Pa.," Joel Kirkland, July 23, 2013

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