Energy. Environment. Economy.

Does Chesapeake Energy Sell Gas To Itself?

Chesapeake Energy Corporation's 50 acre campus in Oklahoma City.

REUTERS/Steve Sisney/Landov

Chesapeake Energy Corporation's 50 acre campus in Oklahoma City.

A moment of confusion surfaced earlier this summer at a state senate hearing on gas royalty payments.

Rep. Tina Pickett (R- Bradford) asked an industry attorney about where the specific point of sale is for natural gas.

His reply?

It’s complicated.

“It can be many places,” said George Bibikos, who was testifying on behalf of the gas industry trade group, the Marcellus Shale Coalition. “It could be the wellhead. It could be downstream. It’s an intricate and complicated structure of contractual arrangements.”

Pickett then followed up with another question.

“Is it a valid point of sale if you’re selling it to a company you own yourself?” she asked.

At first Bibikos didn’t seem to understand. Pickett asked again. There was a pause.

“Yes,” he finally said. “As long as it’s an arm’s length transaction. Sure.”

The question of where and how gas gets sold has become a hot topic in the most drilled on region of Pennsylvania– Bradford County.

A number of landowners there allege they’re being cheated out of royalty payments by Pennsylvania’s biggest gas drilling company, Chesapeake Energy.

The landowners say Chesapeake is improperly charging them for the costs of moving gas from their wells to the market. They say fees for so-called “post-production” costs are exorbitant and not well accounted for– the expenses include things like transportation, pipelines and compressor stations.

Some leases allow for the deductions, while other leases have clauses explicitly prohibiting the practice.

Towanda-based attorney Christopher Jones represents landowners. He testified at the June hearing and says Chesapeake still takes deductions from people with these clauses.

“They’re deducting these costs based on a payment arrangement they have with a company that is a subsidiary of themselves,” he told the Senate Environmental Resources and Energy committee. “In my opinion, that’s an absolute misrepresentation.”

Chesapeake was invited to the hearing, but no one from the company attended.

Other landowners’ attorneys have voiced similar concerns about Chesapeake’s wholly owned subsidiary, Chesapeake Energy Marketing Inc. (CEMI).

“We certainly think it’s a questionable arrangement,” says Scranton-area attorney Doug Clark, “We’re not seeing that with other companies we’re dealing with.”

Clark and several other attorneys have filed class action arbitration against Chesapeake over the royalty payment issue.

Chesapeake has repeatedly refused to comment on widespread allegations it underpays royalties.

As part of his Senate Committee testimony, Jones submitted letters from Chesapeake to his clients explaining its relationship with CEMI. Read one below:


  • env121

    Chesapeake will always cheat people out of anything they can. The cure is to stop doing business with them…………PERIOD!!!

  • WCGasette

    Reminder: Mr. McClendon reportedly owns 2.5% of every gas well that Chesapeake drills.

    This from last year:

    Chesapeake used a lot of intimidation tactics in the Barnett Shale while obtaining so many leases (in the suburbs) during the frenzy years of 5 years ago. Those tactics were conducted by the young landmen and landwomen who were contracted by Chesapeake to ‘git er done.’ Leaders in communities were targeted with promises of bigger $$$$ to get everyone on board and they were very successful with this strategy.

    Chesapeake drilled and fracked near our neighborhoods and never considered the potential catastrophic problems of drilling/perfing/fracking 850 feet from a Dam and Spillway and within the 3,000 ft. Exclusion Zone for Dams already designated in 1996 by the BLM (for mining operations). XTO did the same thing. If they’ll do that…what else will they do and have they already done?

  • Anoracle

    Isn’t it about time that the Anti-Trust Laws are enforced against ALL Major American Oil Companies?
    And, isn’t it the duty of our Government to prevent a type of ‘Bait and Switch” used by Major Oil Companies who ‘Sign Royalty Contracts’ with One Company, and then switch ‘Companies’ to cheat those who deserve the compliance of the Original Contract with the Original Company!

  • Kim Triolo Feil

    the real drill job to the royalty owners is if they are in close proximity to the toxins that drillers chose NOT to contain via Best Avail Control Technologies. If its not mandated why would they spend $ to protect us? We must push our local, state and feds to create laws such as…

    1) use diesel-less engines on rigs/compressors/trucks for preproduction phases (but do not use dirty field gas)
    2) ensure no silicia dust can fly off the padsite and ban the use of uranium to perf detonations
    3) flowback right away- don’t let the well sour and use pressurized tanks (ventless) for flowback
    4) use vapor recovery systems on storage tanks
    5) not allow indirect venting on compressor blowdowns – they must direct whats stuck in the lines to the storage tanks that are equipped with vapor recovery systems.
    6) use the BTEX Eliminator equipment on their dehydrators
    7) invent erosion proof cement and rust proof steel for their casings
    8) get weekly videos from the drillers of a walk through infra red camera inspection proving no gas leaks that speed up global warming.

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