Chesapeake Energy Lease Holders Sue Over CEO’s Preferential Treatment

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According to a lawsuit filed in federal court in Houston, Chesapeake Energy Corporation (NYSE:CHK) let its chief executive officer, Aubrey McClendon earn from the lucrative Texas oil and gas wells, overlooking the interest of leaseholders on the properties.

Chesapeake Energy Lease Holders Sue Over CEO's Preferential Treatment

In one of the biggest value declines of all time, Chesapeake Energy Corporation (NYSE:CHK)’s market value eroded by almost one-fifth this year, due to falling gas prices, combined with the disclosure that its chief executive officer borrowed more than $800 million last year, to pay for his stakes in thousands of company-owned oil and gas wells. Following the disclosure, the board has set up investigations against McClendon and removed him from his chairman’s role.

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As per the lawsuit filed yesterday, McClendon used his stakes in the wells as collateral to buy a 1 percent to 2 percent interest in wells drilled by Chesapeake Energy Corporation (NYSE:CHK). This was unfair to leaseholders, as the company was contractually binded to offer them a similar chance as was availed by McClendon, to earn from the wells it developed across a 10,900-acre patch of the Barnett Shale, an oil and gas formation under Fort Worth, Texas. Currently Chesapeake Energy Corporation (NYSE:CHK) has about 115 producing wells and plans 100 more wells on the tract.

The plaintiffs for the case, MDU Barnett LP and Oil & Gas Working Interests LP, claims that “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.”  Along with the suit, leaseholders also alleged Chesapeake for paying less dues than what is actually due to them , claiming the company refused to undo an accounting error that favored the company, even after bringing the issue up to Chesapeake’s attention in October. In the suit filed, leaseholders are demanding the unpaid proceeds with full accounting and disgorgement of profits related to McClendon’s “preferential treatment”, along with unspecified punitive damages.

The case is MDU Barnett LP v Chesapeake Energy Corporation (NYSE:CHK), 12-cv-2528, U.S. District Court, Southern District of Texas (Houston).

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