Chesapeake Energy Corp. said Thursday it has received subpoenas from the U.S. Department of Justice (DOJ) and some states in connection with an investigation into whether it violated antitrust laws regarding natural gas and oil leasehold purchases, royalty payment practices and accounting methods for acquiring and classifying properties.
In a U.S. Securities and Exchange Commission Form 8-K filing, the Oklahoma City-based producer reiterated an earlier disclosure, that it was subpoenaed by DOJ and state government agencies in connection with potential violations of antitrust laws relating to its purchase and lease of gas and oil rights.
The filing also indicated that Chesapeake has received DOJ, U.S. Postal Service and state subpoenas "seeking information on our royalty payment practices. In addition, we have received a DOJ subpoena seeking information on our accounting methodology for the acquisition and classification of oil and gas properties and related matters."
None of the states involved were disclosed and no other details were provided. However, the investigation could be wide, as Chesapeake is the No. 2 natural gas producer in the country and one of the leading onshore oil operators.
Management said in the filing it is "engaged in discussions with the DOJ, U.S. Postal Service and state agency representatives and continue to respond to such subpoenas and demands."
Chesapeake has faced a litany of lawsuits and investigations that go back several years, mostly centered around leasehold purchases and contracts secured when former CEO and co-founder Aubrey McClendon was running the company. McClendon was ousted in 2013, and the company overhauled its corporate governance, but business practices conducted during his tenure have lingered.
In March, one day before McClendon was killed in an automobile accident, the DOJ issued a criminal indictment claiming he had masterminded a conspiracy with SandRidge Energy Inc., formerly run by Chesapeake co-founder Tom Ward, to depress the market to purchase leaseholds in Kansas (see Shale Daily, July 19; March 2).
After McClendon's death, the indictment was dismissed, but DOJ said it would continue to work with its antitrust division "to target those who devise schemes which create an unfair competitive advantage by way of bid rigging or other illegal means."
Last year Chesapeake agreed to create a $25 million compensation fund to settle multiple antitrust, fraud and racketeering charges filed in Michigan related to a state oil and gas auction held in 2010, when McClendon was CEO (see Daily GPI, April 24, 2015; March 19, 2014). The Michigan Department of Natural Resources in 2012 began working with state Attorney General Bill Schuette regarding allegations that Chesapeake had colluded with Encana Corp. to avoid competing in the sale (see Shale Daily, June 26, 2012). Encana settled with authorities in May 2014 and agreed to pay $5 million in a civil settlement.
The royalties issues are another animal altogether. For example, Chesapeake has had to pay millions to settle lawsuits regarding underpayments in the Barnett Shale alone. In May Chesapeake agreed to pay $29 million-plus of a $52.5 million settlement with more than 13,000 people who had claimed they were underpaid for their gas leases (see Shale Daily, May 23).
Chesapeake has paid millions to settle royalty lawsuits, but it still faces more regarding the Barnett, elsewhere in Texas, and in other parts of the country (see Shale Daily, Aug. 16; July 6; March 23; March 11; Jan. 23, 2015; Aug. 21, 2014; April 3, 2013; March 22, 2013).
Chesapeake also has faced scrutiny for underreporting gas production volumes in Oklahoma. Last year the U.S. Department of Interior fined the company more than $2.1 million for failing to comply with an October 2011 order -- when McClendon was still at the helm (see Shale Daily, Oct. 20, 2015). Interior's Office of Natural Resources found "repeated, systemic errors" in monthly reports of gas produced and sold from more than 100 leases on land owned by tribes and individual Native Americans.