At the beginning of the fourth quarter of 2015, the price of crude oil fell below $50 a barrel. Natural gas prices were similarly low. At the same time, the price per share of Chesapeake Energy Corporation (“Chesapeake Energy”), a natural gas and oil exploration and production company based in Oklahoma City, was approximately $8, a share price decline of over 70% for the year. Chesapeake Energy is currently embroiled in litigation brought by thousands of mineral estate owners/lessors regarding, among other issues, alleged underpayment of royalties. If the mineral estate owners/lessors prevail, Chesapeake Energy may be required to pay plaintiffs more than $1 billion.
The Chesapeake Energy royalty litigation is a prime example of how an extended period of low oil and gas prices may lead to increased litigation commenced by landowners/lessors. Distressed and bankrupt companies are the prime targets of such litigation.
This article discusses the oil and gas royalty in general; the pending Chesapeake Energy litigation; and reported royalty disputes in bankruptcy.
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