HomeMy WebLinkAboutOrdinance 22339-08-2016 ORDINANCE NO.22339-08-2016
AN ORDINANCE INCREASING ESTIMATED RECEIPTS AND
APPROPRIATIONS IN THE LEGAL FEES - CHESAPEAKE SETTLE PROJECT
OF VARIOUS CAPITAL PROJECTS FUNDS, FROM GROSS SETTLEMENT
REVENUE, FOR USE IN PAYING LEGAL FEES AND EXPENSES; PROVIDING
FOR A SEVERABILITY CLAUSE; MAKING THIS ORDINANCE CUMULATIVE
OF PRIOR ORDINANCES; REPEALING ALL ORDINANCES IN CONFLICT
HEREWITH; AND PROVIDING AN EFFECTIVE DATE.
BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF FORT WORTH,
TEXAS:
SECTION 1.
That in addition to those amounts allocated to the various City departments for Fiscal Year 2015-2016 in the
Budget of the City Manager, there shall also be increased estimated receipts and appropriations in the Legal
Fees - Chesapeake Settle Project, from gross settlement revenue, for use in paying legal fees and expenses,
as follows: in the PACS Gas Lease Capital Projects Fund by $695,962.91; in the Aviation Gas Lease
Capital Projects Fund by $2,445,339.92, in the Municipal Golf Gas Lease Capital Projects Fund by
$150,458.62, in the Water/Sewer Gas Lease Capital Projects Fund by $146,854.35; in the Lake Worth Gas
Lease Capital Projects Fund by $311,118.62; and in the General Gas Lease Capital Projects Fund by
$1,254,773.73.
SECTION 2.
That should any portion, section or part of a section of this ordinance be declared invalid, inoperative or
void for any reason by a court of competent jurisdiction, such decision, opinion or judgment shall in no way
impair the remaining portions, sections, or parts of sections of this ordinance, which said remaining
provisions shall be and remain in full force and effect.
SECTION 3.
That this ordinance shall be cumulative of Ordinance No. 21873-09-2015 and all other ordinances and
appropriations amending the same except in those instances where the provisions of this ordinance are in
direct conflict with such other ordinances and appropriations, in which instance said conflicting provisions
of said prior ordinances and appropriations are hereby expressly repealed.
SECTION 4.
This ordinance shall take effect upon adoption.
APPROVED AS TO FORM ND LEGALITY:
Denis e.McElr y, ssistant City Attorney )Mby J�WsqY,City Secretary
ADOPTED AND EFFECTIVE: August 2,2016
Ordinance No. 22339-08-2016
Page 1 of 1
City of Fort Worth, Texas
Mayor and Council Communication
COUNCIL ACTION: Approved on 8/2/2016 - Ordinance No. 22339-08-2016
DATE: Tuesday, August 2, 2016 REFERENCE NO.: G-18792
LOG NAME: 21CHESAPEAKESETTLEMENT-2
SUBJECT:
Authorize Allocation to Various Capital Projects Funds and City-Associated Corporations of Revenues
Received from Chesapeake Energy Corporation and Others Related to the Settlement of Litigation for
Underpayment of Royalties Per Natural Gas Lease Terms, Suspend Financial Management Policy
Statements, Adopt Appropriation Ordinance, and Authorize Expenditure of$5,015,986.32 for Legal Fees
and Expenses Associated with the Litigation Settlement (ALL COUNCIL DISTRICTS)
RECOMMENDATION:
It is recommended that the City Council:
1. Suspend the existing Financial Management Policy Statements to allow the net settlement funds
received by the City from Chesapeake Energy Corporation; Chesapeake Operating L.L.C., Chesapeake
Exploration, L.L.C., and Chesapeake Energy Marketing, L.L.C. (collectively Chesapeake) as well as from
Dorchester Resources, L.P., to be used solely for Pay-As-You-Go Capital Projects and to not place any of
the funds in the Fort Worth Permanent Fund Trust or the Golf Debt Service Fund;
2. Adopt the attached appropriation ordinance increasing estimated receipts and appropriations by a total
of$ 5,004,508.15 in legal fees - Chesapeake Settle Project in various capital projects funds as shown,
from gross settlement revenues, for use in paying legal fees and expenses:
Fund Name Amount
PACS Gas Lease Capital Projects Fund $695,962.91
Aviation Gas Lease Capital Projects Fund $2,445,339.92
Municipal Golf Gas Lease Capital Projects Fund F $150,458.62
Water/Sewer Gas Lease Capital Projects Fund F $146,854.35
Lake Worth Gas Lease Capital Projects Fund $311,118.62
General Gas Lease Capital Projects Fund $1,254,773.73
3. Authorize expenditures totaling $5,015,986.32 for legal fees and expenses related to the litigation and
settlement, with such payment allocated as follows:
Fund Name I Amount _
PACS Gas Lease Capital Projects Fund $695,962.91
Aviation Gas Lease Capital Projects Fund F $2,445,339.92
Municipal Golf Gas Lease Capital Project Fund F $150,458.62
Water/Sewer Gas Lease Capital Projects Fund $146,854.35
Logname: 21 CHESAPEAKESETTLEMENT-2 Page 1 of 4
Lake Worth Gas Lease Capital Projects Fund 1 $311,118.62
General Gas Lease Capital Projects Fund $1,254,773.73
Fort Worth Housing Finance Corporation $7,219.33
Fort Worth Local Development Corporation $4,258.84
4. Authorize the allocation of$15,000,000.00 derived from the settlement, less legal fees and expenses, to
various funds and City-associated corporations based on a pro-rata share of the proceeds, with all City of
Fort Worth dollars designated for use in Pay-As-You-Go Capital Projects and use of each corporation's
dollars subject to the determination of its board of directors:
Fund/Entity rdross Settlement Allocation of Legal I Net Settlement
Allocation Fees and Expenses Allocation
PACS Gas Lease $2,081,234.54 $695,962.91 $1,385,271.63
Capital Projects Fund
Aviation Gas Lease $7,312,639.29 $2,445,339.92 $4,867,299.37
Capital Projects Fund F Municipal Golf Lease $449,937.28 $150,458.62 $299,478.66
Capital Projects Fund
Water/Sewer Gas Lease $439,158.93 $146,854.35 $292,304.58
Capital Projects Fund
Lake Worth Gas Lease $930,381.18 $311,118.62 $619,262.56
Capital Projects Fund
General Gas Lease $3,752,324.00 $1,254,773.73 $2,497,550.27
Capital Projects Fund _ (�
Fort Worth Housing $21,588.951 $7,219.33 $14,369.62
Finance Corporation
Fort Worth Local
Development $12,735.83 $4,258.84 $8,476.99
Corporation
DISCUSSION:
In September 2013, as a result of a partial audit of the oil and gas leases held by Chesapeake Operating,
Inc. (now known as Chesapeake Operating, L.L.C.) (together with its associated entities, Chesapeake)
and Total E&P, USA (together with its associated entities,Total), the City of Fort Worth determined that
Chesapeake and Total had significantly underpaid royalties to the City.
On October 22, 2013 , the City Council authorized engaging the services of Ralph Duggins of the firm
Cantey Hanger LLP, to represent the City in subsequent litigation against Chesapeake and Total for
breach of contract and the underpayment of royalties(Mayor and Council Communication (M&C) G-
18047). The subsequent contracts executed between the City and its associated corporate entities and
Cantey Hanger LLP, allowed attorneys to recover 33-1/3 percent of any amounts or value received by the
City and the corporate entities, whether by way of settlement or judgment from a court, as well as recovery
for the direct costs and expenses incurred by the attorneys. (City Secretary Contract Nos. 45030, 45287
and 45288).
Logname: 21 CHESAPEAKESETTLEMENT-2 Page 2 of 4
In 2013, the City and the corporate entities filed lawsuits against Total and Chesapeake breached their
obligations under the applicable leases by underpaying royalties per the lease terms.
In January, 2016, Total offered to settle the litigation for $6,000,000.00, representing the 25 percent
ownership of the leases it had acquired from Chesapeake in 2009. The City and Total determined that it
was in their respective best interests to resolve the lawsuit (Cause No. 48-268798-13). The Settlement
provided that Total would pay the amount of$6,000,000.00 and execute an amendment to each of the
leases for total's interests to ensure agreed-upon methods of calculating future royalties. On March 22,
2016, the City Council approved the settlement of all claims against Total for $6,000,000.00 (M&C G-
18694). On June 14, 2016, the allocation of the Total settlement to capital funds and corporate entities
was approved by City Council (M&C G-18759). The net amount allocated after the deduction of attorney
expenses and contingency fees was $3,901,582.30.
In May, 2016, Chesapeake offered to settle the litigation for$15,000,000.00. The City and Chesapeake
determined that it was in their respective best interests to resolve the lawsuit (Cause No. 48-268798-
13). The Settlement provided that Chesapeake would pay the amount of$15,000,000.00 and execute an
amendment to each of the leases for Chesapeake's interests to ensure agreed-upon methods of
calculating future royalties. On May 24, 2016, City Council approved the settlement of all claims against
Chesapeake (M&C G-18745). The agreed upon amount of the Settlement was $15,000,000.00.
The Chesapeake Settlement distribution was received from Cantey Hanger LLP, on June 1, 2016 in the
amount of$9,984,013.68 ($15,000,000.00 Chesapeake Settlement less attorney contingency fee of
$5,000,000.00 and other attorney fees and expenses of$15,986.32). The allocation of revenues and
expenditures for the City and the corporate entities are outlined in the recommendations. The Fort Worth
Housing Finance Corporation will receive net revenue of$14,369.62. The Fort Worth Local Development
Corporation will receive net revenues of$8,476.99. Separate actions will be taken by the respective
boards of the corporate entities to allocate the Chesapeake Settlement revenues received.
The City's Financial Management Policy Statements (FMPS) allocate gas lease revenue to Capital funds,
endowment/trust funds, and the Golf Debt fund. This M&C suspends the FMPS and allocates revenue to
capital funds and corporate entities only and does not allocate any settlement funds to the Fort Worth
Permanent Fund Trust or the Golf Debt Fund.
This M&C does not request approval of a contract with a business entity.
FISCAL INFORMATION / CERTIFICATION:
The Director of Finance certifies that the Property Management Department is responsible for the
allocation of the proceeds and expenses from the gas lease litigation settlement and that upon approval of
the above recommendations and adoption of the attached appropriation ordinance, funds will be available
in the current capital budget, as appropriated, of the various capital project funds.
FUND IDENTIFIERS (FIDs):
TO
Fund Department Account Project ProgramActivity Budget Reference # Amount
ID ID Year Chartfield 2
33002 0800450 4800200 UNSGAS 2016 2,035,010.26
33002 0800450 4800200 UN9687 2016 $5,930.35
4)330021 0800450 4800200 UN9648 2016 $40,293.93
4)530021 0550435 4800200 UNSPEC 2016 7,312,639.29
330041 0804005 4800200 UNSPEC 2016 $449,937.28
Logname: 21 CHESAPEAKESETTLEMENT-2 Page 3 of 4
4)530041 0600430 4800200 UNSGAS 1 2016 $146,386.31
53004 0600430 4800200 UNSPEC 2016 $292,772.62
33001 0600430 4800200 UNSPEC 2016 $930,381.18
33005 0214040 4800200 B60001 2016 3,752,324.00
33002 0800450 5520114 100452 2016 $695,962.91
53002 0550435 5520114 100452 2016 2,445,339.92
33004 0804005 5520114 100452 2016 $150,458.62
53004 0600430 5520114 100452 2016 $146,854.35
33001 0600430 5520114 100452 2016 $311,118.62
33005 0214040 5520114 100452 2016 $1,254,773.73
FROM
Fund Department Accouni Project ProgramActivity Budget Reference # Amount
ID ID Year Chartfield 2
33002 0800450 4800200 UNSGAS UN9200 2016 $680,505.56
33002 0800450 4800200 U N9687 U N9200 2016 $1,983.10
33002 0800450 4800200 U N9648 U N9200 2016 $13,474.25
53002 0550435 4800200 UNSPECI UNSPEC 2016 2,445,339.92
33004 0804005 4800200 UNSPEC UN9200 2016 $150,458.62
2)530041 0600430 4800200 UNSGAS UN1400 2016 $48,951.45
2)530041 0600430 4800200 UNSPEC UN1400 2016 $97,902.90
2)330011 0600430 4800200 UNSPEC UN1500 2016 $311,118.62
2)330051 0214040 4800200 B60001 B60000 2016 $1,254,773.73
3)330021 0800450 5520114 100452 2016 $695,962.91
3)530021 0550435 5520114 100452 2016 2,445,339.92
3)330041 0804005 5520114 100452 2016 $150,458.62
53004 0600430 5520114 100452 2016 $146,854.35
3 33001 0600430 5520114 100452 2016 $311,118.62
3),33005 0214040 5520114 100452 2016 1,254,773.73
CERTIFICATIONS:
Submitted for City Manager's Office by: Jay Chapa (5804)
Originating Department Head: Steve Cooke (5143)
Forrest Brown (6328)
Additional Information Contact: Alphonsine Kabasele (8183)
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