AG Shapiro, Chesapeake Energy Reach Settlement Amid Bankruptcy

March 8, 2021 | Topic: Consumers

Shapiro Ensures Protections for Landowners Moving Forward

TUNKHANNOCK, PA—Attorney General Josh Shapiro today announced that the Pennsylvania Office of Attorney General has reached a settlement agreement with Chesapeake Energy (Chesapeake), who filed for bankruptcy in June 2020. The settlement provides for better payment of royalties for Pennsylvania landowners with Chesapeake leases going forward; improved protections for landowners through appointment of an Ombudsman to investigate individual claims, OAG compliance and inspection rights, and annual reporting; and $5.3 million in restitution for Pennsylvania landowners with Chesapeake leases.

“The bottom line here is that this settlement will end the abuse from Chesapeake and allow landowners to take a new lease with no deductions,” said AG Shapiro. “This case is about standing up to powerful interests when they try to take advantage of people. And it’s about my duty, as the Attorney General of this Commonwealth, to uphold the law and apply it.”

The PA Office of Attorney General (OAG) initially filed a complaint against Chesapeake Energy, the country’s second-largest national gas producer, in December 2015. The complaint alleged Chesapeake engaged in unfair and deceptive business practices in securing natural gas leases and in its improper payment of royalties to Pennsylvania landowners. The complaint was amended in 2016 to add Anadarko Petroleum (Anadarko) as a defendant and allegations that Chesapeake and Anadarko allocated markets to secure leases and deprived landowners of the benefit of competition for securing leases.

In December 2017, the Bradford County Court of Common Pleas denied Chesapeake’s preliminary objections to the complaint finding that the defendants and their oil and gas leasing practices are subject to the Unfair Trade Practices and Consumer Protection Law (UTPCPL) and that the lawsuit was in the public interest. The company then appealed the decision and in March 2019, the Commonwealth Court of Pennsylvania again found defendants and their oil and gas leasing practices were subject to the UTPCPL. The defendants appealed to the Pennsylvania Supreme Court, which conducted oral arguments in May 2020.

On June 28, 2020, Chesapeake filed for bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division. The bankruptcy court stayed the Pennsylvania Supreme Court case against Chesapeake so it could not go forward. On February 9, 2021, Chesapeake emerged from bankruptcy, but an injunction was put in place that continues to prevent the Office of Attorney General from moving forward with this case and getting the restitution landowners deserve. The case against Anadarko is awaiting a decision by the Pennsylvania Supreme Court.

“For years, Chesapeake tried to publicly pressure my Office into settling on their terms. That didn’t happen,” said Shapiro. “They tried to argue that our court action was holding up settlements in a separate, private class-action lawsuit filed directly by landowners…None of this was necessary; they didn’t have to act like this, and the fact of the matter their conduct exposed their disregard and mistreatment of folks here in Northeastern Pennsylvania and in the Northern Tier.”

Under the settlement, Chesapeake Energy must:

  • Provide an opportunity to Pennsylvania landowners with Chesapeake leases to obtain better payment of royalties going forward;
  • Stop offering leases that contain “market enhancement” clauses or “ready for sale or use” clauses to Pennsylvania landowners;
  • Hire an Ombudsman to investigate individual claims, selected by AG Shapiro and Chesapeake, to review and respond to landowner complaints;
  • Allow the Pennsylvania OAG access to Chesapeake’s books and records to ensure compliance with the settlement agreement;
  • Provide clear, transparent pricing information on their website, as well as an annual report to the Pennsylvania OAG detailing royalty payments; and
  • Pay landowners $5.3 million in restitution and $350,000 to the OAG towards its costs and fees.

The settlement has been filed in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. Executive Deputy Attorney General James Donahue, Chief Deputy Attorney General Tracy Wertz, and Senior Deputy Attorneys General Joseph Betsko and Norman Marden of the Public Protection Division and Antitrust Section managed the case with assistance from the Civil Division’s Appellate and Financial Enforcement Sections. The investigation was conducted by Nina Correale and Logan Kane. The AG’s office has posted a FAQ sheet here for those interested in how this settlement will impact them.

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