ECONOMIC BLACKMAIL: WV UNDER SIEGE BY PRODUCERS - Royalty Owners Could Lose, Lose, Lose

(02/23/2007)

OPINION & COMMENT By Bob Weaver

West Virginia is under economic blackmail by one of America's largest gas producers, Chesapeake Energy, following a $404 million jury decision in Roane County.

While representing the industry, Chesapeake could be changing the future disposition of all gas and oil holdings in the Mountain State with the introduction of a bill in the West Virginia Legislature.

The bill has the obvious blessing of Gov. Joe Manchin, who told producers he supports "corrective" action, henceforth comes Senate Bill No. 731 - "Fairness in Production Royalty Payments Act."

The "fairness" is certainly not to royalty holders, the bill allows the natural gas producers to deduct post-production expenses from royalty owners checks.

The day of the jury decision, royalty owners were continuing to get check stubs with with zero payment from Chesapeake and other outfits, despite the ongoing lawsuit of several years accusing them of deducting post-production costs.

Information used in obtaining the jury verdict was obtained from company records. An attorney for the plantiffs said "They don't seem to be denying they ripped-off royalty owners, they just want to make it legal."

The 8,000 royalty owners, whose legal rights have been violated, and tens of thousands of other royalty owners, should be prepared to circle the state Capitol if 731 or its variations move forward in the legislature.

With unprecedented arrogance, Aubrey McClendon, CEO of Chesapeake Energy, has expressed no compassion for royalty owners, threatening to take his marbles and go home.

McClendon not only has threatened to stop construction of a multi-million dollar executive office in Charleston, but has said his outfit might pull out of the state for the next thirty years if he is not treated better.

Maybe he should go.

West Virginian's were poor before the extractors came with their deals approved by the WV legislature, and most of them are poor after.

The state remains at the economic bottom after billions and billions of dollars have been extracted every year - coal, oil, natural gas, etc.

Former governor Underwood's Managed Timberland initiative gave a 66% tax break to timber corporations, while claiming to help the little woodlot owner.

There is little if any evidence in the USA of tort reform initiatives applying to the jury decision made in Roane County in January, which included $271 million in punitive damages.

There is nothing to indicate that fraud is legal.

Most punitive damage cases have carried an amount of three to five times the damages awarded. The Roane case was about twice the amount.

Chesapeake and other oil and gas producers are not so concerned about the amount decided by the jury.

They're wanting to change the law.

The royalty law was affirmed by a WV Supreme Court decision in 2006. That decision stood-up for WV royalty holders and their rights.

Chesapeake's media blitz portrays producers as victims. CEO McClendon has not mentioned that in his home state of Oklahoma, the royalty holders historically have had the same protected ownership rights as West Virginia.

His state of Oklahoma does not allow tacking on production costs to royalty owners.

The bill, in a radical and startling manner, allows all oil and gas producers to go back to 1992 and deduct from royalty owners the companies post-production expenses, unless the lease has some specific language disallowing it.

It is exactly opposite of the 2006 WV Supreme Court ruling.

The proposed legislation was introduced by Sen. Brooks McCabe, D-Kanawha, and Sen. Billy Wayne Bailey, D-Wyoming and has been referred to the Committee on Energy, Industry and Mining and then to the Committee on the Judiciary.


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