LANSING, Mich. — The Michigan attorney general’s (AG) office announced last week it has reached a settlement with Chesapeake Energy Corp. over allegations of bid rigging and racketeering related to oil and gas leasing in 2010.
State officials reached a $25 million civil settlement with the company over allegations it conspired with Canada’s Calgary, Alberta-based Encana Oil & Gas to avoid bidding wars against each other in Michigan public auctions for oil and gas leases that caused lease prices to plummet in October 2010, according to a statement from the AG’s office.
The settlement also addresses complaints that Chesapeake defrauded hundreds of private citizens by fraudulently canceling their oil and gas leases in 2010. AG Bill Schuette had previously reached a $5 million settlement agreement with Encana in May 2014.
Last September a Cheboygan County district court judge wrote, in ordering Chesapeake to go to trial over the charges, that it misled landowners in 2010 by having its agents tell those in northern Michigan that having a mortgage would not be a problem to enter into an oil and gas lease, but then it later told the landowners the mortgages were a problem after a hole came up dry.
The judge also wrote that officials from two companies acting for Chesapeake testified at a hearing normally a mortgage on a property isn’t, in fact, a problem as far as such leases were concerned.
Among other charges, it was alleged after it was discovered many of the leased properties were found to be unproductive, Chesapeake ordered its agents to find any excuse to void the leases, whether because of a mortgage or some other reason. It was also alleged when competition from competitors stopped, Chesapeake, through its leasing agents Oil Niagaran and a shell corporation called Northern Michigan Exploration, canceled nearly all the leases, using mortgages and other bogus reasons as excuses. Schuette alleged Chesapeake obtained in this way uncompensated land options from the landowners by false pretenses and prevented competitors from leasing the land.
Representatives from Chesapeake also entered two no-contest pleas before Judge Scott Pavlich in Cheboygan Circuit Court, to one count of criminal attempted antitrust violations and one count of false pretenses, both misdemeanors. If the company abides by the settlement arrangement, the criminal case will be dropped after 11 months.
Schuette said this will allow all 700 victims to be fully compensated for their actual losses. "This is a victory for Michigan taxpayers and a victory for all the Michigan landowners who took deep hits to their pocketbooks following the October 2010 private land auction," he said April 26. "This settlement will achieve recovery for every one of the more than 700 affected victims who come forward and make a valid claim."
Last September, Chesapeake spokesman Gordon Pennoyer said the company believed the AG was attempting to criminalize basic contract disputes and that the company would like to move past "these legacy issues." In a statement last week, he said the company is "pleased to have reached a mutually acceptable agreement with the Michigan attorney general and to move past these legacy issues inherited from past management."
(In 2013 a number of top level executives at Chesapeake were fired from their jobs amid widespread reports of lavish spending at the company, according to articles from Thomson-Reuters and The Oklahoman.)
Under the terms of the settlement announced last week, a $25 million victims’ compensation fund will be established and every victim listed in the state’s racketeering complaint will be paid back 100 percent of their losses and attorney fees, according to the AG’s office.
Those who pursued private settlements with Chesapeake garnered a total of $19 million in settlements from the company; these individuals will have the opportunity to have their cases reopened to recoup additional losses not already compensated.
The company will also pay $5 million to the state of Michigan; $2.5 million will go to a coffer managed by the Department of Natural Resources, which was impacted by Chesapeake’s actions, and the remaining $2.5 million will help pay for the state’s antitrust enforcement activities.
People who have not yet come forward in the last four years have 120 more days to file a claim.
