Chesapeake Energy

Tim Evanson via Wikimedia Commons

This week, a Cheboygan District Court Judge ruled that Chesapeake Energy will go to trial for alleged fraud.

Michigan Attorney General Bill Schuette has accused the Oklahoma-based energy company of swindling landowners in northern Michigan.

Peter Payette is with our partners at Interlochen Public Radio and he has been covering this story.

How did all of this start?

Around May of 2010, the state auctioned off the right to drill for oil and gas on public land.

"And that auction saw prices that were astronomical. The state in one day raised as much money from the sale of oil and gas rights as it had raised in its entire history," Payette says. "And that's because out-of-state companies believed that by using these newer methods of horizontal hydraulic fracturing that they could make a lot of money by drilling deep down in the ground and taking out natural gas."

These companies went out to private landowners that summer and asked to explore their properties for oil and gas. The landowners signed leases. "And those promised what is called a 'order of payment' and in many cases the landowners did not receive payment and may say they were cheated and are owed money," Payette says.

World Resources Institute

You might recall that earlier this year Michigan’s attorney general filed charges against two energy giants.

Encana Oil and Gas USA and Chesapeake Energy were accused of colluding to lower the price of land leases for oil and gas exploration.

Last Friday, a Michigan Cheboygan County District Court judge ruled that Chesapeake Energy Corp must face a criminal trial, citing evidence of a conspiracy between the companies.

Reuters quoted Judge Maria Barton of Michigan’s Cheboygan County District Court:

"The direct and circumstantial evidence established that the parties did in fact strike an agreement to bid-rig the State sale." 

Part of that evidence could have come from Encana Oil. That company struck a plea deal with the State of Michigan in exchange for its help in Michigan's anti-trust case Chesapeake Energy. Encana also agreed to pay a $5 million fine.

This past May, MPRN's Rick Pluta reported:

 If Encana lives up to its end of the bargain, the state will drop other criminal charges at a sentencing hearing in 11 months.

Chesapeake Energy is the nation’s second-largest producer of natural gas.

Wyoming Upper Green River Valley / Flickr

Today lawyers with Michigan’s Attorney General’s office will begin outlining the state’s case against energy giants Chesapeake Energy and Encana Oil & Gas USA.

The allegations stem from an auction for drilling leases on state land three years ago.

In May 2010 an auction of drilling leases brought in $178 million. That’s almost as much as all the revenue from all of Michigan’s leases of public land from 1929 to now, combined.

morguefile

The Michigan Legislature recently approved a package of bills that’s causing a split between environmental groups.

The legislation would lower a tax on a certain kind of oil recovery.

Jake Neher is the capitol reporter for the Michigan Public Radio Network and he’s been following this story. I spoke with him about these bills for today's Environment Report.

“The main bill in the package would cut the state severance tax from 6.6% to 4% for companies using what’s called enhanced production or enhanced recovery methods to essentially clean out low-producing oil wells. So basically, they pump a bunch of carbon dioxide into the wells to help get relatively little amounts of oil out of them. In other words, companies would pay a lower tax rate on the oil they take out of the ground using that process.”

There’s an old joke that says Republicans are the party in favor of local control, except when they aren’t, which is to say when local governments do something Republicans in the Legislature don’t like – for example, providing what they see as excessive health benefits to their employees.

Now it seems that the GOP is also the party which is aggressively in favor of the free market – except when it isn’t. And it is often convenient to be in favor of regulation in favor of the public interest in an election year.

Bureau of Land Management

The state of Michigan alleges energy giants Encana Oil and Gas USA and Chesapeake Energy worked together to get cheaper prices to lease land to drill for oil and gas.

Michigan’s attorney general filed charges against the companies earlier this month. Today, the companies were arraigned on conspiracy and anti-trust violations.