Report: Energy giant's shell firm cancels 800 Mich. leases

Using a shell company, the nation's second-largest natural gas driller, Chesapeake Energy, terminated leases with more than 800 Michigan land owners and is being sued for allegedly not paying bonuses averaging $95,000, according to an investigation by Reuters.

Oklahoma-based Chesapeake created a paper-only company, Northern Michigan Exploration, "so that one of America's largest energy companies could conceal its role in the leasing spree," Reuters writes.

Chesapeake says it has done nothing wrong.

Shell companies aren't illegal, Reuters points out. One legal expert called them "business as usual." The Chesapeake/Northern Michigan operation "exemplifies how U.S. corporations routinely can conceal financial and corporate transactions through the use of shell companies " and "serves as an intriguing test case of the use of shell companies," Reuters concludes.

The Michigan land owners, many of them elderly farmers, signed drilling leases with brokers working for Northern Michigan Exploration who "were under strict orders not to divulge Chesapeake's role," Reuters writes. Records show Chesapeake's CEO, Aubrey McClendon, is also the CEO of the Michigan shell.

At least 115 land owners whose leases were ended by Northern have sued for fraud, Reuters says. Chesapeake's defense is that Northern signed the leases, not Chesapeake.

Chesapeake says it acted properly. It says some land owners were paid bonuses. It also disputes "canceling" any Michigan contracts; rather, some contracts were "rejected" because property titles didn't pass muster, its corporate counsel says.

In written responses, Chesapeake says it sometimes uses shell companies to "keep a low profile" and avoid tipping off competitors and "speculators" about its land-leasing and drilling efforts. Such tactics are common in real estate, scholars say.

But now, Chesapeake also is using shells as a legal defense to shield itself against land-owner lawsuits. The energy giant has said in court that it was Northern Michigan Exploration, not Chesapeake, that canceled the leases.

If land owners prove that they should have been paid, at issue is who will be held accountable: Chesapeake, a corporation with $37 billion in assets, or Northern, a shell company with no publicly documented assets.

Source: http://rssfeeds.usatoday.com/~r/TP-OnDeadline/~3/AVXjZzSVxUo/1

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