Chesapeake Energy Corp. has had a difficult year. The Oklahoma City-based oil and natural gas producer has endured lawsuits from landowners, a plummeting stock price, a scandal involving its board chairman, and ongoing state and federal probes into the company.
Landowners in Texas, Michigan and North Dakota have filed lawsuits against the company, claiming that Chesapeake reneged on lease agreements. As the price of gas decreased, Chesapeake attempted to cancel hundreds of lease agreements with mineral rights owners, only to be rebuked in court.
A recent decision by the U.S. Court of Appeals is one example. Chesapeake attempted to void an agreement with Plano, Texas-based Peak Energy Corp., claiming that the letter of intent both parties signed did not amount to a valid contract. The Fifth Circuit upheld a multi-million dollar ruling from the district court, holding that Chesapeake breached its contract and ordering the company to pay Peak Energy $12,000 per acre. The court’s decision does not bode well for Chesapeake, as the Fifth Circuit covers a large swath of oil and gas land and its rulings are influential in other circuits regarding mineral rights matters. Chesapeake told investors recently that the failure of the hundreds of lease deals had cost the company more than a billion dollars.
Last spring it was alleged that Aubrey McClendon, who founded Chesapeake and served as its board chairman, had taken out more than $1.5 billion in loans that he did not disclose, and that his personal lender was also a Chesapeake investor. The company ousted McClendon as chairman, and the Securities and Exchange Commission continues to investigate financial dealings between McClendon and Chesapeake.
Later in the year, Reuters reported that Chesapeake and its competitor, Encana Corp., had tried to prevent a situation where they would bid against each other in a land purchase. The Department of Justice is now investigating whether or not anti-trust laws were violated.
Chesapeake Energy is the second-largest gas producer in the United States and once held mineral rights to land equal in size to the state of West Virginia.