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Chesapeake Fined $2.1M For Repeatedly Underreporting NatGas Volumes in Oklahoma

Chesapeake Energy Corp. has been fined more than $2.1 million by the U.S. Department of Interior for repeatedly underreporting natural gas production volumes in Oklahoma.

Interior's Office of Natural Resources Revenue (ONRR) said Monday that Chesapeake had failed to comply with an October 2011 order that found "repeated, systemic errors" in monthly reporting of gas produced and sold from more than 100 leases on land owned by tribes and individual Native Americans. ONRR had ordered Chesapeake to restructure its monthly reporting system as part of a review to correct any unreported/misreported volumes.

"While the company assured ONRR it had corrected the reports, follow-up checks still found additional errors," said Interior's Paul A. Mussenden, deputy assistant secretary for natural resources revenue management. "Correct royalty reports, especially on American Indian leases, are essential for ONRR to ensure all royalties are paid, to provide reliable data used by ONRR's audit and compliance teams, and to provide accurate data to the American public."

Interior eventually obtained Chesapeake's compliance to amend monthly reports but it "continued to maintain inaccurate information on ONRR data systems for an extended period," officials said. The fine, which covers misreported amounts produced on the individual leases only, is for "knowing or willful maintenance of this inaccurate information.”

After Interior issued its initial request in October 2011, Chesapeake informed ONRR in May 2012 that all of the corrections required had been submitted. However, follow-up testing found more underreported volumes. The company then said it corrected those additional errors, but further reviews found still more incorrect data.

Following the settlement announcement on Monday, a Chesapeake spokesman said the company looked forward "to further strengthening our relationship with the Department of the Interior."

Two years ago Chesapeake was fined $765,000 for "knowing or willful submission of inaccurate information" of royalties on another Indian lease also in Oklahoma (see Shale DailyApril 3, 2013). In early 2014 the company also was ordered to pay $428,400 for underreporting royalties on a tribal lease in Oklahoma dating back to 2005. In that case, ONRR said auditors found inaccurate reports and notified the company, but Chesapeake did not make the proper corrections.

Earlier this year Chesapeake agreed to pay $119 million to settle a lawsuit with a private landowner in Oklahoma for allegedly underpaying gas royalties on nearly 12,000 wells over a 10-year period (see Shale DailyJan. 23). According to filings, Chesapeake Operating LLC agreed to pay for improperly deducting expenses for marketing, processing, compression and other midstream services for 11,800 gas wells. The lawsuit covered production from 2004 through 2014.

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