Approximately 20,000 royalty owners who have Barnett Shale natural gas leases with Chesapeake Energy likely will see their royalty checks slashed by roughly 25 percent as a result of the company deducting expenses associated with post-production costs such as gas gathering, compression and transportation.
That means a monthly royalty check that would have been $100 could now be cut to $75.
The percentage and dollar amount of the decreases in royalty checks will vary month to month based on the level of natural gas prices, how high post-production costs are and the varying volumes of production from wells.
Affected royalty owners were notified of the new company policy in recent letters. The changes took effect with July royalty checks that were based on May production, according to Julie Wilson, Chesapeake vice president for urban development and the top executive in its Fort Worth regional office.
Henry Hood, senior vice president and general counsel for Oklahoma City-based Chesapeake, said the post-production costs that will be deducted generally run anywhere from 70 cents to $1 per 1,000 cubic feet of gas produced. Natural gas prices recently have been in the general range of $4 per 1,000 cubic feet.
With the current level of gas prices, royalty checks will be “about 25 percent lower,” Hood said.
Chesapeake is the No. 2 producer in the natural gas-rich Barnett Shale, which underlies more than 20 North Texas counties.
Wilson said about 75 percent of Barnett Shale royalty owners with Chesapeake leases were sent the letters advising them that the assessment of post-production costs subjects them to reductions in their royalty checks.
The approximately 25 percent of royalty owners who won’t see their monthly checks affected are those who have lease provisions precluding assessments for the post-production costs, Hood said.
--Jack Z. Smith