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Fort Worth Sues Chesapeake Energy Over Natural Gas Royalties

FORT WORTH (CBSDFW.COM) - The City of Fort Worth is suing one of the companies it used to celebrate. In a lawsuit filed this week, Fort Worth claims Chesapeake Energy shorted the city millions of dollars in royalties from natural gas leases. The city claims the company violated lease agreements by deducting productions costs, and using "sham contracts" with sister companies, to retain more of the money that was due the city.

Mayor Betsy Price said the suit followed the findings of a small team of accountants and attorneys who looked at a portion of Chesapeake's business records during an August trip to Oklahoma City. The inquiry was prompted by similar lawsuits against the company, including from the Dallas Fort Worth International Airport and the City of Arlington.

The lawsuit says the city found Chesapeake had been deducting money from royalty checks for items including production, trucking and marketing costs. The suit says Chesapeake was also selling gas to Chesapeake Energy Marketing, an affiliate company, and deducting related third party costs from the transactions.

The suit says the money lost is in the millions. Fort Worth has received tens of millions of dollars since 2006, from leases on more than 6,000 acres of city land.

There was discussion with attorneys from Chesapeake before the suit was filed, Price said, but the city needs to look at additional business records from the company.

"We never want to sue," she said. "You want that to be a last resort. But occasionally to get adequate discovery and into people's business records we're just kind of at that point where we have to do that.'

The royalty payments were allegedly missed during a time when Chesapeake was a prominent part of Fort Worth. The company located its regional headquarters in a downtown high-rise and sponsored community events.

Chesapeake endorsed Price when she ran for office. The former top executive in the region, Julie Wilson, is a friend of Price and was often pictured with her at events.

Price said she did not see the the alleged discovery of missing payments though as a betrayal by the company.

"I think this is really business," she said. "This is protecting our taxpayers, protecting our citizens and going out and trying to recover what we believe they're owed."

In an email to CBS 11 News, Chesapeake declined to comment on the suit.

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