AG orders records released; Fort Worth school district settled with Chesapeake for $1million

By Max Baker
Fort Worth Star-Telegram
Originally published April 11, 2016

FORT WORTH – The Fort Worth school district settled its lawsuit with Chesapeake Energy over natural gas royalties for $1 million, according to documents released Monday after the Texas attorney general decided that the information is public.

The attorney general’s office ordered the district to release details of the out-of-court settlement despite efforts by Chesapeake to keep it private through a confidentiality agreement signed by both parties in December. The Star-Telegram, along with the city of Fort Worth, sought to have the settlement agreement, approved by the Fort Worth school board in January, released under the Texas Public Information Act.

The school district accused the Oklahoma energy giant of using sham deals and outright fraud to subtract post-production costs from its natural gas royalty payments.

The attorney general’s opinion was issued Friday, and the school district released the two-page settlement document — a more formal agreement is supposed to be written later — on Monday after the Star-Telegram requested the details.

Chesapeake, which faces hundreds of similar lawsuits over royalty payments, argued that releasing the settlement details would allow the information to be used against the company in other litigation. In its arguments, Chesapeake portrayed other litigants as “competitors.”

But Assistant Texas Attorney General Nicholas Ybarra was not persuaded by that argument.

“We find Chesapeake has failed to demonstrate release of the information at issue would give advantage to a competitor or bidder,” Ybarra wrote in a Friday letter released Monday. “Accordingly, the district may not withhold any of the submitted information.”

Gordon Pennoyer, a Chesapeake spokesman in Oklahoma City, declined to comment on the ruling by the attorney general but said the company is “pleased to have reached a fair and reasonable agreement and looks forward to further strengthening our relationship with the Fort Worth Independent School District.”

Open government advocates were eagerly awaiting the attorney general’s decision.

“We’re gratified the attorney general ruled in favor of the public’s right-to-know concerning the agreement between the school district and Chesapeake,” said Star-Telegram Executive Editor Jim Witt.

Kelley Shannon, executive director of the Freedom of Information Foundation of Texas, said, “This is a positive and important ruling by the Texas attorney general’s office. Taxpayers have a right to know how their money is managed by elected officials, including legal settlements made on behalf of citizens.”

The Fort Worth school district did not take a position on releasing the information.

In its lawsuit filed in 2014, the district accused Chesapeake of cheating it out of an unspecified amount of money from royalty payments by subtracting unacceptable post-production costs. The district’s lawsuit included at least 30 leases covering at least 1,000 acres.

Chesapeake argued that the procedures it used to drill, market and sell natural gas complied with the lease. In settling the lawsuit in January, it did so without admitting any wrongdoing.

Attorneys and others familiar with the Chesapeake lawsuits say the company was seeking confidentiality not only for how much is being paid out, but also for other settlement considerations such as how leases will be handled in the future.

Chesapeake cited a Texas Supreme Court ruling from June that said a private company doing business with a public entity can ask that details be kept private if it feels that release would give competitors an advantage.

We’re gratified the attorney general ruled in favor of the public’s right-to-know concerning the agreement between the school district and Chesapeake. Star-Telegram Executive Editor Jim Witt

Under the terms of the settlement, Chesapeake agreed to pay the district the price for the Natural Gas Pipeline Co. of America-Texok Zone as published in an industry market report minus 65 cents per million British Thermal Units of natural gas.

Chesapeake also agreed to pay $50,000 in attorneys fees.

The deal also releases any claims against Total E&P USA, which owns a 25 percent stake in Chesapeake’s Barnett Shale holdings.

Last month, Total settled its lawsuit with the city of Fort Worth for $6 million. The settlement covered 5,800 acres of city property and about 260 leases in Tarrant and Johnson counties.

The city of Fort Worth’s lawsuit against Chesapeake is still pending. The city is suing for more than $33 million.

__

Staff writer Yamil Berard contributed to this report.