Landowners upset over unpaid royalties in the Barnett Shale




Posted on October 25, 2012 at 9:49 PM

Updated Friday, Oct 26 at 10:07 AM

DALLAS -- The Barnett Shale: To many North Texas property owners, it evokes images of a modern-day gold rush.

But with prices falling, some royalty owners who were expecting to cash in are now confused. What happened to the hype and, more importantly, to their cut of the profits?

Ten years ago, towering rigs sprouted like weeds along with the prospect of easy money for those who signed on the dotted line. But in 2008, about the time homeowners in were hoping to cash in, the bubble burst. Prices plummeted. And while wells were pumping, not everyone was being paid.

So how do mineral owners find out the production of their well? It's not easy. The information is buried in a video here, within the Texas Railroad Commission website.

Among those confused and frustrated is Fort Worth resident Carolyn Green.

Green, and many of her neighbors, agreed to lease their mineral rights to Chesapeake Energy in 2007. She was paid $300 up front and told to expect regular royalties after the well began producing.

State records show the well, a mile from her house, began flowing in July of 2010 and has generated 1.6-million cubic feet of gas in just two years. According to Chesapeake Energy, that's about $630,000 in homeowner royalties. Green had never seen the production numbers, until News 8 showed her. She immediately contacted a customer service representative at Chesapeake to ask where her money was.

“I have a copy here of some production numbers, and it looks real good since y'all have been pumping," Green told the representative on the other end of the line. “The numbers look real good and I have not received a dime."

Over the past few weeks, News 8 randomly picked royalty owners in the same neighborhood, showing them the same well production numbers.

Among them was Luella Crain who, when we showed her the production numbers and asked her if she had received any money, she replied, “None, None. Not a penny."

Chesapeake Energy declined an on-camera interview, but said 320 contracts have been signed, and more than $290,000 in royalties have been paid out on this particular well. But Chesapeake also says more than half of the royalties due –– $339,000 –– are sitting in an account, unpaid.

Why? They say the proper royalty owners have not been verified or located, but that they are still trying to locate them.

But concerns over unpaid royalties are not unique to Chesapeake.

In Arlington, just a few blocks from a well owned by Carrizo Gas, News 8 gave Carrizo royalty owners their first look at nearly two years of gas production numbers. More than a million cubic feet of gas had been produced since December of 2010. But homeowners we talked to say that's news to them.

"Nobody has alarmed me or let me know that our well is even producing,” Aaron Brewer said. “I haven’t received any money. Nobody around here has received a dime."

Brewer said Carrizo officials told him he can't be paid because of an existing, unused line of credit on his house. A block away, we showed royalty owner Jeanie Helms the same figures.

“I didn’t know anything about it," Helms said.

Like her neighbor, Helms has been told she can't be paid royalties by Carrizo because of her outstanding line of credit. She also said the line of credit had never been tapped into.

Oklahoma oil and gas attorney Ed White regularly sues drilling companies for under-payment of royalties.

"I've never heard of a company withholding royalties based on a lien of any sort," White said.

He said holding back royalty payments is a widespread practice in the natural gas industry, especially now that profits are depressed.

"There's always a substantial driver to skim, and even to cheat,” White said. “Some companies want more money. But when you are so cash strapped that you are almost collapsing, that driver becomes much more crucial."

One industry insider, whose identity we have agreed to protect, said he believes Carrizo is playing games by suspending royalties.

"But now what they are doing is they are basically putting everyone’s royalties into suspense, and then are saying, 'We are not going to pay you, and if you own your house outright or any of that other stuff, prove it,'" the insider told us.

Our repeated calls and e-mails to Carrizo's corporate offices in Houston have gone unanswered for more than a week.

It’s an overall lack of response that frustrates folks like Carolyn Green, whose minerals are making money for someone else. Ms. Green has since been contacted by Chesapeake officials, who have pledged to distribute the unpaid royalties.