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.