» Chesapeake Faces Department of Justice Investigation and Ongoing Lawsuits Over Royalty Payments

Chesapeake Faces Department of Justice Investigation and Ongoing Lawsuits Over Royalty Payments

Chesapeake Energy, facing multiple lawsuits from landowners over claims of underpaid royalties, has revealed that the company has been subpoenaed by the U.S. Department of Justice and several states over its alleged wrongdoing.

State attorneys and federal prosecutors have demanded that Chesapeake produce documents, give testimony and provide information relating to the alleged underpayments. Separately, the company has revealed that it has been subpoenaed regarding possible violations of anti-trust laws. In Michigan and Pennsylvania, Chesapeake faces racketeering charges.

The federal and state investigations come as Chesapeake continues to face a number of civil lawsuits from landowners. Dozens of landowners in Texas and Oklahoma have sued Chesapeake, claiming that the company used accounting tricks to avoid paying them the full royalty payments they were due for allowing Chesapeake to drill for oil and gas under their land. 

The lawsuits allege that Chesapeake engaged in sham transactions with affiliated companies in order to manipulate natural gas prices, calculated royalties based on below-market prices, and deducted post-production costs from royalty payments, even when lease agreements prohibited such deductions.

In Michigan, Chesapeake is facing a criminal anti-trust complaint over alleged collusion with Encana Corp. to rig bids for drilling leases in the Collingswood shale region of the state. Also in Michigan, the company faces racketeering charges for allegedly offering large bonuses to landowners in order to lock up mineral leases in the region, then backing out of the leases once the competition had been shut out.

Chesapeake is still recovering after the ouster of CEO Aubrey McClendon, who was the subject of a federal investigation over alleged financial misdeeds.

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