Chesapeake Energy Corporation (NYSE:CHK), the company Aubrey McClendon built into a natural gas giant, was recently sued by leaseholders who claim the company conspired to rig bids for drilling rights during the shale boom. The alleged conspiracy started around Dec. 27, 2007 and continued until at least March 31, 2012, said Chisholm Partners LLC, an investment firm that owned leases in Kansas, and other leaseholders.
Chesapeake and others allegedly conspired to depress the market
According to a complaint filed in federal court in Kansas on July 13, investors who sold natural gas and oil land leases to now-bankrupt SandRidge Energy and Chesapeake Energy sued Tom Ward (SandRidge’s former CEO) and Chesapeake, alleging that they conspired to depress the market for those leases.
In the filing, Chisholm said its investors lost more than $10 million due to the alleged conspiracy, and the leaseholders are seeking threefold damages from the court. According to the claims by Chisholm, SandRidge and Chesapeake divided the area covering the Anadarko Basin in Kansas and other states and agreed not to compete. This decreased the prices for the leases. In the lawsuit, the plaintiffs are seeking $30 million in damages.
Aubrey McClendon, a deceased former executive of Chesapeake, was indicted along with other unnamed co-conspirators on March 1 on federal charges of bid-rigging. On March 2, McClendon died in a car accident. In the complaint, Chisholm said that many believe the other unnamed co-conspirators were Ward, SandRidge and Chesapeake. Ward co-founded Chesapeake with McClendon in 1989, and then in 2006, he founded SandRidge.
About the case
In 2010, Chisholm acquired numerous oil and gas leases covering thousands of acres in Kansas. Chisholm then entered into discussions with many companies, including Chesapeake, Shell Oil and SandRidge. The main competitors for the leases were SandRidge and Chesapeake as their bids pushed up prices, said Chisholm. Then SandRidge ended all communication with Chisholm.
On several dates in 2011, Chisholm entered into agreements to sell leases to Chesapeake. Chisholm said the energy company purchased 100% of the membership interest in Chisholm on Dec. 1, 2011 and sold the leasehold interests acquired to SandRidge.
Gordon Pennoyer, director of strategic communications at Chesapeake, said, “We disagree with their assertions and will address them in the appropriate forum.”
Representatives for Tom Ward’s new company, Tapstone Energy, and SandRidge were not immediately available to comment on the matter.
In premarket trading today, Chesapeake shares were down more t han 1%. Year to date, the stock is up more than 2%, while in the last year, it is down almost 59%.