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Home My WebLink AboutResolution 4135-09-2012A Resolution NO. 4135-09-2012 AUTHORIZING THE EXECUTION OF AN AMENDMENT TO A MINERAL LEASE FOR PROPERTY LOCATED AT DALLAS/FORT WORTH INTERNATIONAL AIRPORT WHEREAS, the Cities of Fort Worth and Dallas, together with the Dallas/Fort Worth International Airport Board ("Board") entered into a Mineral Lease ("Lease") with Chesapeake Exploration, L.L.C. for property located on Dallas/Fort Worth International Airport; and WHEREAS, the Lease sets forth the manner of calculation of royalties; and WHEREAS, the Lease provides that the minority working partners shall be jointly and severally liable for the entire Lease; and WHEREAS, the parties to the Lease are in litigation in Tarrant County, Texas regarding the contractual measure of royalties and retained tracts; and WHEREAS, the retained tracts issue was previously resolved via a partial, settlement agreement; and WHEREAS, the parties have tentatively reached a full and final settlement regarding the contractual measure of royalties; and WHEREAS, as part of this full and final settlement, the parties have agreed to release the working interest partners from joint and several liability for lease obligations for the entire lease, and to limit their liability for lease obligations in proportion to their ownership; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF FORT WORTH, TEXAS THAT: SECTION 1. The City Manager is hereby authorized to execute an amendment to the Lease providing that the royalties will be based on the higher of (a) proceeds actually received by Chesapeake or (b) the index price for Natural Gas Pipeline Company of America — Texok Zone, as published in Platt's Inside FERC's Gas Market Report less $0.350 and that the working interest partners will be liable for lease obligations in proportion to their lease ownership. SECTION 2. The approvals and authorizations contained in this resolution are further conditioned upon similar approvals and authorizations by the City Council of the City of Dallas. &RTY , qT3 it Resolution No. 4135-09-2012 SECTION 3. This resolution shall take effect immediately from and after its passage in accordance with the provisions of the Charter of the City of Fort Worth, Texas and it is accordingly so resolved. Adopted this 25`" day of September, 2012. ATTEST: By: Mary Kayser,,,ity Secretary NUZ9 ir 0000000 'P 60 0 0 0 0 00 * %0 � Ic 00000000 M MAM 1 [010 1 0.14 V� MORIN, Date Committee Subject Resolution # 09/06/2012 Full Board Settlement of Dallas/Fort Worth International Airport Board, et al 2012-09-334 v. Chesapeake Exploration LLC, Action That the Cities of Dallas and Fort Worth are requested to execute a full and final settlement of Cause No. 153-237052-09; Dallas/Fort Worth International Airport Board, et al v. Chesapeake Exploration LLC, in the 153rd Judicial District of Tarrant County, Texas; and to execute a lease amendment as described herein. Description • The proposed settlement will settle the royalty dispute between the parties, which is the only remaining issue in the referenced litigation, on the following terms: ♦ Back Royalties. Chesapeake will pay DFW $5,000,000 for production through June 2012, and be released from all royalty liability for that period; ♦ Future Index. Beginning with July 2012 production, royalties will be based on the higher of (a) proceeds actually received by Chesapeake or (b) the index price for Natural Gas Pipeline Co. of America - Texok Zone, as published in Platt's Inside FERC's Gas Market Report (the "Index") less $0.350 (the "Adjusted Index"). ♦ 2012 (July-Dec.) Price Guarantee. From July 2012 to December 2012, Chesapeake guarantees that royalties to DFW will be at least $60,000 per month higher than they would have been if based on proceeds received from Chesapeake's current marketer, Louis Dreyfus. In the event Chesapeake ceases to sell to Louis Dreyfus, then the royalties paid to DFW will be at least $60,000 per month higher than they would have been if based on the published Carthage daily midpoint price less $0.65 on a weighted average basis for all gas sold in the month. ♦ Limited Liability of Working Interest Partners. Total E&P USA Inc. and all the other working interest partners, including the remaining MWBEs, will no longer have joint and several liability for the entire lease; but only liability for lease obligations in proportion to their ownership. Chesapeake will continue to have joint and several liability for all lease obligations. Justification • This will fully settle all issues in controversy between DFW and Chesapeake, and will establish a more definite formula for payment of future royalties. D/M/WBE Information Contract # Agreement # Purchase Order # Action Amount Revised Amount $0 $0 For Information contact Fund Project # External Funding Source Amount Paul Tomme $0 3-5480 Additional Information Resolution # 2012-09-334 Additional Attachments: N BE0'RESOLVED BY THE DALLAS-FORT WORTH INTERNATIONAL AIRPORT BOARD That the Cities of Dallas and Fort Worth are requested to execute a full and final settlement of Cause No. 153-237052-00; Dallas/Fort Worth International Airport Bnard, et al v. Chesapeake Exploration LLC. in the 153rd Judicial District of Tarrant County, Texas; and to execute a lease amendment as described herein. Approved Tnmme.Pau| General Counsel Sep 6, 2012 10:16 am Approved as to Funding by ' K8iyoshito. Glenn AVP Capital Planning Finance Sep 6, 2012 3:55 pm SIGNATURE REQUIRED FOR APPROVAL Approved by Department Head Legal Sep 6, 2012 10:14 am Approved as to MfWBE by 11 1�7 Cruz-Sewell, Suzanne AVP Business Diversity &Oev Business Diversity and Development Sep 6.2O123:27pm �� Sep 7, 2012 1:10 pm Chief Executive Officer ISMM � City of Texas Mayor and Council Communication Ij DATE: Tuesday, September 25.2012 REFERENCE NO.: G-17680 LOG NAME: 12DFVV CHESAPEAKE SETTLE Authorize Execution of a Full and Final Settlement Agreement in Cause No, 153-237052-09, Dallas/Fort Worth International Airport Board, et al. v. Chesapeake Exploration, L.L.C. and Adopt a Resolution Authorizing an Amendment iOthe K8iO8nm| Lease Between Dallas/Fort Worth International Airport Board, City of Fort Worth, City of Dallas and Chesapeake Exploration, L.L.C. (ALL COUNCIL DISTRICTS) It is recommended that the City Council: 1. Authorize execution ofa full and final Settlement Agreement iD Cause No. 153'237052-OS.Dallas/Fort Worth International Airport Board, et al. v. Chesapeake Exploration, L.L.C.; and 2. Adopt a Resolution Authorizing an Amendment to the Mineral Lease between Dallas/Fort Worth International Airport Board, City of Fort Worth, City of Dallas and Chesapeake Exploration, L.L.C. The City of Fort Worth, the City of Dallas and the Dallas/Fort Worth International Airport Board (BOmrd) are in litigation with Chesopeake Exploration, Ll.C. The original claims were based on the measure of royalties and the measure ofretained tracts. On April 16' 2012. the parties entered into partial settlement Agreement, covering the measure of retained tracts. The proposed settlement Agreement will settle the measure of royalties dispute, which is the only remaining claim, on the following terms: Back Royalties. Chesapeake will pay the Board $5,000.000.00 for production from the first date of production through June 2012 and be released from all royalty liability for that period. Future Index. Beginning with July 2U12production, royalties will be based Vn the higher uf(a) prOcgedo actually received bv Chesapeake or/b\ the index price for Natural Gas Pipeline CunlpmnyofAnlehoo' TexohZbne.anpub|iehedinMatt's|nniderFEFlC'sNotuna|G\osReport(ihe\ndex)|oss$0.35/the Adjusted Index). 2012 (July-Decernber) Price Guarantee. From July 2012ho December 2012. Chesapeake guarantees that royalties payable to the Board will be at least $60,000.00 per month higher than they would have been if based on proceeds received from Chesapeake's current marketer, Louis Dreyfus. In the event Chesapeake ceases tV sell U3 Louis Dreyfus, then the royalties paid tothe Board will be at least $OO,DO0OO per month higher than d would have been if based nn the published Carthage daily midpoint price less $0.65 on ovveighLed average basis for all natural gas sold during the month. [nunume: |2[)FW CHESAPEAKE SETTLE Page l of Limited Liability of Working Partners. All working interest partners, including the remaining K888/BEs.wiU no longer have joint and several liability for the entire lease. The liability of the working interest partners will be limited to their proportion of ownership. Chesapeake will continue to have joint and several liability for all lease obligations. An Amendment to the Mineral Lease is necessary to change the manner of calculating royalties and to limit the liability of the working partners. On September O,2D12.UlmBOaPdopprVved81epn}posgdGmMennmntendanneDdmmntk}theKXineno| Lease. The City of Dallas has not yet scheduled a vote on this item. CERTIFICATION: FISCAL INFORMATION I The Financial Management Services Director certifies that this action will have m] material effect onCity funds. FUND CENTERS: TO Fund/Account/Centers Submifted for City Manacier's Office by: Originating Department Head: Additional Information Contact: FROM Fund/Account/Centers Fernando Costa (6122) SanahFuUanxvder (8006) Charlene Sanders (7611)