Pennsylvania

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As fraud allegations mount against Chesapeake Energy, so does frustration

Landowners who have been accusing natural gas driller Chesapeake Energy of stealing their money say Harrisburg is doing little to stop it.

Most of the company’s Pennsylvania operations are in Bradford County. It’s a rural area stretching along the New York border; it has more Marcellus shale gas wells than any other part of the state. StateImpact Pennsylvania first talked with landowners there in June 2013.

A year-and-a-half later, they say Chesapeake is still cheating them:



“Highway robbery”

“Gas companies have a great deal of money, high-powered lawyers,” says Janet Geiger. “If you grease the right hands, you get away with a lot.”

Before Janet and her husband Richard ever heard of the Marcellus Shale, the retirees leased the mineral rights under their 10 acres. They never thought much would come of it.

That’s proven to be true.

Every month they’re supposed to get a royalty check with their share of the money Chesapeake makes selling their gas.

“A few months ago Chesapeake kept 92 percent of our check,” says Janet. “You couldn’t print what I really think of the gas company. We’re not even getting enough to pay our property taxes. I think it’s highway robbery.”

Bradford County Commissioner Doug McLinko (R) has been hearing complaints about the company for nearly two years.

“I get approached at the grocery store, at the gas pumps, walking down the street, on my phone, on text messages—everywhere. All the time,” he says.

So what’s going on?

Chesapeake was an early adopter of fracking, which allowed it to unlock huge reserves of natural gas. But the glut of gas caused prices to crater, and the company nearly collapsed. Last year the company’s founder and CEO was pushed out amid revelations about questionable financial deals.

The $5 billion shuffle

A lengthy article published in March by the investigative news outlet ProPublica laid out how the struggling company managed to stay afloat– by allegedly gouging rural landowners.

According to ProPublica’s investigation, Chesapeake spun off some of its pipeline systems into a new company called Access Midstream– raising nearly five billion dollars.

Chesapeake then promised to send much of its gas through those pipelines for the next decade and pledged to pay Access enough in fees to repay the five billion, plus a 15 percent return on its pipelines.

That was only possible if Access charged Chesapeake significantly higher fees for moving the gas.

These are known as “gathering fees,” and Chesapeake passed them along to people like the Geigers, deducting them from their monthly royalties.

“We’ve gotten $710 from them for the entire year,” says Janet Geiger. “They’ve kept $1,500 and some.”

Chesapeake Energy and Access Midstream both declined to comment for this story.

After reading the ProPublica article, the Bradford County commissioners wrote to the U.S. Department of Justice asking for an investigation.

“I want to go on record saying I support developing the Marcellus Shale 100 perecent, unapologetically,” says Commissioner McLinko. “But that doesn’t mean we support every practice. That doesn’t mean we support every operator.”

Chesapeake recently disclosed it has been subpoenaed by the Justice Department. It was already under scrutiny in Pennsylvania.  Earlier this year Governor Corbett asked state Attorney General Kathleen Kane to look into the company, but her office has repeatedly declined to discuss the status of the investigation.

Meanwhile Chesapeake has tried to change its image. A new CEO cut costs, laid off employees, and sold acreage.

But retiree Terry van Curren doesn’t expect much from the company’s makeover. He lives down the street from the Geigers and has also seen most of his royalty money get eaten up by fees.

“I never believed we’d get much money,” he says. “But I didn’t think they’d actually steal it from us. And I didn’t think the state would stand by and allow that to happen.”

“Fundamental fairness”

A 35-year-old state law known as the Guaranteed Minimum Royalty Act requires oil and gas companies to pay a minimum 12.5 percent royalty.

But with such high gathering fees, some landowners say they’re getting far less.

A bill introduced last year by state Rep. Garth Everett (R- Lycoming) aims to keep gas companies from charging such high fees.

He says many companies treat people fairly– but some don’t. He doesn’t think Chesapeake is the only bad apple.

“There are many, many of my colleagues—from even non-Marcellus areas—that agree with the fundamental fairness that our landowners should be paid that minimum royalty,” says Everett.

But the bill hasn’t gone anywhere.

McLinko has pushed hard for the measure. He’s particularly frustrated with the legislative leadership, including members of his own party, like House Majority Leader Mike Turzai (R- Allegheny).

“I saw [Turzai] on the street, handed him a map of the drill units, and tried to talk to him. Right there in front of the Capitol, he bolted away from me,” says McLinko. “They don’t want to hear it. It’s almost a waste of my gas and time to drive to Harrisburg to talk about it.”

Turzai (who was recently elected House Speaker) wouldn’t comment for this story. But according to a recent analysis by the nonpartisan government reform group Common Cause PA, Turzai ranks second among state legislators when it comes to taking gas industry campaign contributions. He’s accepted more than $272,000 since the drilling boom began.

The industry has lobbied heavily against the bill, calling it “a vast legislative overreach”, and arguing it’s unconstitutional because it would change the terms of contracts that have already been signed. However no one from the industry’s three major statewide trade associations (Marcellus Shale Coalition, American Petroleum Institute, and Pennsylvania Independent Oil & Gas Association) agreed to be interviewed for this story.

Back in Bradford County the as the Geigers look over their royalty statements, they keep a tally of the money they’ve lost so far.

They say they’re not hopeful things will change anytime soon, at least not in their lifetimes.

 

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