Reuters Drops Another Chesapeake Energy Bombshell: Sayonara, Property Rights

Chesapeake CEO Aubrey McClendon
Chesapeake CEO Aubrey McClendon

Chesapeake Energy, one of the shale boom's biggest players, has amassed the rights to drill on acreage roughly equal to the size of West Virginia. It's a shrewd strategy -- tie up all the land you can using outrageous sums of borrowed cash (more than $30 billion), freeze out your competitors, then drill it or sell it at a premium.

And wouldn't you know, they've used some downright underhanded tactics to accomplish this massive land grab, according to the latest report from Reuters.

Meet the Bhandaris of Arlington, who weren't particularly keen on leasing the minerals beneath their home to Chesapeake. The couple is opposed to drilling in urban and suburban areas. They said no to potentially thousands of dollars, but that wasn't anywhere near the last word on the matter. Chesapeake got what's known as a Rule 27 37 exception from the Railroad Commission of Texas, Reuters reports, which allows the company to take the minerals beneath the property against the Bhandaris' will. It amounts to what one law scholar describes as the involuntary "transfer of private property."

It's more common than you might think. The Railroad Commission apparently doles these exceptions out like candy, with Chesapeake as the most frequent taker. Out of the more than 3,500 exception applications since 2005, Chesapeake has applied for some 1,600 of them. The Railroad Commission granted all but five.

If the apparent deprivation of Texans' supposedly sacrosanct property rights isn't enough, Reuters also discovered Chesapeake has been signing leases it has no intent to honor, simply as a way to tie up the land and horn competitors out. The resulting lawsuits are merely one of the accounted-for hazards in this strategy.

This story is the latest in a bang-up series that began with the discovery of a clear conflict of interest in Chesapeake CEO Aubrey McClendon's personal investments in oil and gas. He was replaced as chairman of the board, though he remains at helm of the company.

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