Chesapeake Favored CEO Over Leaseholders, Suit Claims
Aug. 23 (Bloomberg) - Chesapeake Energy Corp. (CHK) let Aubrey McClendon, its chief executive officer, profit from lucrative Texas oil and gas wells while denying the same chance to leaseholders on the properties, according to a lawsuit.
Chesapeake lost one-fifth of its market value this year as the impact of tumbling gas prices was compounded by disclosure that McClendon borrowed more than $800 million last year to finance his stakes in thousands of company-owned oil and gas wells. McClendon was stripped of his chairman’s role in June and is under investigation by the board for his borrowings.
According to a complaint filed yesterday in federal court in Houston, McClendon was allowed to purchase a 1 percent to 2 percent interest in wells drilled by Chesapeake, using his stake in the wells as collateral. The company was contractually obligated to offer the leaseholders a similar chance to profit in wells it developed across a 10,900-acre swath described as the “sweet spot” of the Barnett Shale, an oil and gas formation under Fort Worth, Texas, according to the plaintiffs, two Houston energy companies.
Chesapeake has about 115 producing wells and plans 100 more wells on the tract, according to the filing.
The company should have to disgorge all profits “related to the self-dealing and/or preferential treatment provided Aubrey McClendon, who received value for his working interests of Barnett Shale production wells to the exclusion of plaintiffs,” said the plaintiffs, MDU Barnett LP and Oil & Gas Working Interests LP.
Jim Gipson, Chesapeake’s spokesman, didn’t immediately respond yesterday to voice and e-mail messages seeking comment on the suit. Walter Umphrey, a lawyer for the plaintiffs, didn’t immediately return a call to his office in Beaumont, Texas.
The leaseholders also accuse Chesapeake of consistently underpaying proceeds due under their leases. They claim it has refused to correct accounting errors that “typically” favor the company, some of which the leaseholders said they brought to Chesapeake’s attention in October.
The leaseholders are seeking the outstanding proceeds due them, a full accounting and disgorgement of profits related to McClendon’s “preferential treatment,” according to the complaint. They also seek unspecified punitive damages.
The case is MDU Barnett LP v Chesapeake, 12-cv-2528, U.S. District Court, Southern District of Texas (Houston).
To contact the reporter on this story: Laurel Brubaker Calkins in Houston at firstname.lastname@example.org
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