Chesapeake Energy and Range Resources, two major gas drillers that pretty much packed up and left Tarrant County once the Barnett Shale’s best days were gone, are in hot water in other parts of the country.
Chesapeake faces criminal racketeering, fraud, and anti-trust charges in Michigan in connection with mineral rights leases. In Pennsylvania, Range has been handed the largest fine for groundwater contamination in the state’s history and must shut down several wastewater pits. Both companies deny any wrongdoing.
Range Resources, a Fort Worth-based company, has repeatedly been accused of ruining water wells and otherwise contaminating groundwater in both Texas and Pennsylvania (“Range Wars,” Dec. 23, 2013). The record-setting $4.15 million fine for some of that contamination was levied against the company last month.
The Pennsylvania Department of Environmental Protection found Range responsible for groundwater contamination due to leaks in several holding ponds and drilling waste pits. The ponds, which hold water both before and after it is used in the drilling and fracking processes, and waste pits are lined to prevent their toxic contents from seeping into the ground. Uncovered holding ponds routinely emit volatile organic compounds, all dangerous and some carcinogenic, as the liquid evaporates. Drilling waste pits hold solids and chemical-laden-sludge brought up to the surface during drilling.
In the case that drew the fine, the Pennsylvania environmental agency ordered Range to completely shut down five wastewater ponds, upgrade two others, and limit one exclusively to hold fresh water.
“Range has agreed to this,” said John Poister, spokesman for the Pennsylvania DEP. “They are paying the fine and shutting down the impoundments that need to be shut.”
Range is also in the process of removing hundreds of millions of pounds of contaminated soil from the areas around the impoundments.
Although the DEP says gas drilling has contaminated 243 water wells in that state since 2007, it agreed with Range that the company’s wastewater pits have not contaminated any water wells in the area of the leaking ponds.
However, several families have sued Range and the DEP for water-well contamination directly related to those ponds. And evidence revealed in one of those lawsuits appears to contradict the DEP’s claim of no water-well damage.
During an administrative hearing, a DEP water-quality specialist acknowledged that the agency had committed several improprieties in determining that Range had not contaminated farmer Loren Kiskadden’s water well. DEP, for instance, did not tell Kiskadden that acetone — used in drilling — and other dangerous contaminants from the area around a leaking wastewater pit had also been found in his well water.
Kiskadden is suing Range for water-well contamination, joined by two other families who claim their wells were ruined by the same waste pit leakage. Several other families are suing the company separately because their wells, near other waste pits that Range has been ordered to shut down or upgrade, were also ruined.
Though the $4.15 million fine is a record in Pennsylvania, DEP’s initial findings that no water wells were affected could save the company millions more in lawsuit judgments. If Kiskadden proves that Range was responsible for contaminating his water well, dozens of other families are expected to sue as well.
Ron Gulla, a retired oilfield equipment salesman, won a $1.5 million settlement from Range over the contamination of his land in Pennsylvania. He said that the water in some wells near the Range ponds ordered closed “has made a lot of people terribly ill and killed livestock.”
Up in Michigan, Chesapeake Energy has been charged with one count of felony racketeering and 20 counts of criminal fraud. In a separate action, the company has been charged with engaging in a price-fixing conspiracy to drive down Michigan gas lease rates.
If found guilty, Chesapeake faces fines of up to $100,000 on the racketeering charge, $10,000 on each fraud charge, and up to $1 million in the anti-trust case.
Chesapeake spokesman Gordon Pennoyer told Fort Worth Weekly in an e-mail, “We continue to believe the [state] attorney general is attempting to criminalize basic contract disputes. Chesapeake remains focused on moving past these legacy issues from 2010 and executing our business strategies to drive profitable growth … .”
The fraud and racketeering charges were filed by Michigan Attorney General Bill Schuette in June. Chesapeake tried to get the charges dismissed, but in August Cheboygan District Judge Maria Barton ruled that the company must stand trial. No trial date has been set.
Pennoyer said he continues to believe Chesapeake will win in court. The burden of proof that the state must meet in order to win a criminal conviction is much higher than that required to keep the charges from being dismissed, Pennoyer said.
The fraud complaints allege that Chesapeake sent landmen to get gas leases in what looked to be an area rich in natural gas. Many lease signers asked whether having a mortgage would impede them in getting their bonus money but were assured that there would be no problem.
After the leases were signed but before bonus money was paid, Chesapeake drilled a well that came up dry — a rare occurrence in shale gas drilling — and realized that the area’s gas and oil resources were not as great as initially believed. The company then cancelled the leases without paying the bonus money, on the grounds that the leases were subject to mortgages. According to the complaint, between 700 and 800 landowners signed leases, and fewer than 30 were ever paid.
Schuette alleges that Chesapeake acted under false pretenses in each of the 20 fraud cases, forming the basis for the racketeering charge.
In the price-fixing case, Schuette’s office alleges that Chesapeake participated in a conspiracy that caused lease prices in the area to fall from $1,510 per acre to $40 in just five months.
In a state land auction in October 2010, both Chesapeake and the Encana Corp., a Canadian-based energy giant, acquired gas drilling leases from property owners. But according to the complaint, “in 2012, the Reuters news agency discovered a possible conspiracy between the two companies’ executives following the May 2010 auction to split up the Michigan counties where each company would be an exclusive bidder for both public and private leases.”
According to Joy Yearout, a spokeswoman for Schuette’s office, a Chesapeake conviction wouldn’t put anyone in jail.
Encana agreed earlier this year to pay a $5 million fine in the case.
Chesapeake has a history of making decisions to the detriment of leaseholders. While the company has not been charged criminally in Fort Worth, it has been sued by the Hyder family, the Bass family, school districts, and Dallas/Fort Worth International Airport over underpaid royalties. Similarly, Range Resources has a history of alleged groundwater and water-well contamination, including wells in Parker County.
