Pennsylvania’s attorney general sued one of the nation’s largest producers of natural gas on Wednesday over claims it cheated at least 4,000 landowners who signed drilling leases with the company.
Oklahoma City-based Chesapeake Energy Corp. tricked landowners into signing industry-friendly leases in the early years of the Marcellus Shale drilling boom and then improperly deducted post-production expenses from their royalty checks, according to the lawsuit filed in Bradford County.
Chesapeake, the nation’s No. 2 gas producer, engaged in a “bait and switch scheme” with landowners, said the lawsuit, which seeks tens of millions of dollars in restitution as well as civil penalties.
Chesapeake denied the claims.
“We strongly disagree with Attorney General (Kathleen) Kane’s baseless allegations and will vigorously contest them in the appropriate forum,” Chesapeake spokesman Gordon Pennoyer said.
Landowners in the Marcellus Shale — a deep rock formation that holds the nation’s largest known reservoir of natural gas — have been complaining for years about Chesapeake’s business practices, and a settlement agreement between the driller and thousands of landowners is pending. Kane is seeking to modify the civil settlement so that her own lawsuit can go forward.
A landowners group hailed the lawsuit.
“We’ve been waiting a long time for this,” said Jackie Root, president of the Pennsylvania chapter of the National Association of Royalty Owners. “It looks like it’s going to provide relief to a lot of lessors, people who have been cheated out of what was due them, and hopefully without attorneys’ fees and without having to fight for it.”
Kane’s office launched an investigation nearly two years ago into complaints that landowners in northeastern Pennsylvania were being cheated of royalties, interviewing hundreds of landowners and sifting through their lease paperwork to decide who might have been defrauded.
“We have identified at least 4,000 landowners, but we expect the number could be considerably higher. We’re hopeful that today’s filing will lead other affected landowners we have not spoken with to share their concerns with the office,” said Jeffrey Johnson, a spokesman for Kane.
Root said she recently worked with one landowner who not only stopped receiving royalty checks from Chesapeake, but was told by Chesapeake that he owed the company money.
Like other drillers, Chesapeake deployed so-called “landmen” to negotiate with property owners in the early years of a drilling and fracking boom that turned Pennsylvania into the nation’s No. 2 gas-producing state after Texas. The rush to lock up huge tracts of land for drilling “provided the conditions necessary for the unscrupulous procurement of oil and gas leases from Pennsylvania landowners,” the suit said.
Chesapeake’s landmen used high-pressure sales tactics; discouraged landowners from comparing terms with one another and from hiring lawyers; made false statements about the leasing process; and engaged in other “unfair and deceptive negotiation tactics” to get unsuspecting, unsophisticated landowners to sign, the suit said.
Later, Chesapeake and another company, Williams Partners LP, artificially inflated transportation and other post-production costs, and Chesapeake improperly passed them on to the landowners, the suit said.
A Williams spokesman said the company was preparing a comment on the lawsuit.
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Reminds me of an old school chum’s story about a guy who rented his parents farm, with a carefully worded lease that he then interpreted as a right to bring in a logging company to cut down and sell every tree on the property. By the time the farmers geared up to fight the deception in court, the deed was done. So not just cheating property owners out of income from their mineral rights, but even billing them for the company’s own operating expenses sounds about right. Hope they nail these bastards.
The same people have been fighting to route gas pipelines across heritage farms, pipelines not to deliver gas to local customers, but to pipe the gas to terminals, load it on ships, and export to foreign customers.
This is the oil industry in action, working hard to maximize their own profits while they cheat everybody else. We may have lots of gas right now, at the expense of wells destroyed by fracking, but after they plunder it all, we’ll be importing again in a generation or two when it’s all gone. They make money both ways.
Been reading Grisham’s Gray Mountain. Not his best work but passable. Sometimes fiction tells the truth better than non-fiction. The book described much of the kind underhanded dealings found in this article but from coal companies. If all energy companies are like this then I can see why countries nationalize the energy sector.
Coal companies operate the same. I remember back in the 60s small legacy land owners in eastern Kentucky were deceived into selling their mineral rights with no warning that their entire property would be strip mined to depths up to 30 feet - right up to the front door of their cabins - and left that way. Not only was their land destroyed of course but I remember seeing pictures of homes left sitting atop “cliffs” created by strip mining around them, which eventually collapsed into the sulphur-laden, polluted pits the coal company left behind, leaving the owners homeless and with land that was then virtually worthless. Of course it was all “legal” and it made the predatory, immoral Mellon family richer than ever.