DOI Slaps Chesapeake with $765K Fine for Underpaying Royalties

The U.S. Dept. of Interior (DOI) has accused Chesapeake Energy of underpaying oil and gas royalties due to DOI for drilling on federal lands and has slapped Chessy with a $765,000 fine. Chessy says there has been no intentional shorting of royalty payments and if you add up the total amount in question, it’s less than $500–little more than a rounding error on the purchase of paperclips for DOI.

DOI says Chessy has a history of “inaccurate reporting” when it comes to royalty reporting:

The U.S. Department of the Interior said Tuesday it has fined Chesapeake Energy Corp. $765,000 for underpaying oil and natural gas royalties on federal lands.

Chesapeake denied the claims and said it will request a hearing on the matter.

Chesapeake spokesman Jim Gipson said the issue relates to payments totaling less than $500.

“Chesapeake does not believe that it knowingly or willfully submitted inaccurate royalty reports,” Gipson said.

The Interior Department’s Office of Natural Resource Revenue said it found the error during an audit that began in 2009. The government said it notified Chesapeake of the error, but that the company “failed to comply at that time.”

The government said Chesapeake made the corrections through April 2011, but that in May 2011 it “resumed its practice of submitting inaccurate royalty reports.”

The Interior Department said its auditors warned Chesapeake of continued violations in orders dated Oct. 6, 2011, and Sept. 4, 2012.

“Despite these repeated warnings, Chesapeake failed to take actions to prevent such incorrect reporting and continued to submit reports with the same inaccuracies,” Greg Gould, director of the Office of Natural Resource Revenue, said in a statement Tuesday.

“We are fully committed to collecting every dollar due to the American taxpayer, and it is simply unacceptable for Chesapeake Energy to misreport sales volume information. Chesapeake Energy has been repeatedly warned about its inaccurate reporting on this oil and gas lease from May 2011 throughout July 2012,” Gould said.*

The obvious problem for Chesapeake is that private landowners everywhere–including in the Marcellus and Utica–will now begin to question whether or not Chessy is playing funny with their royalty payments.

*Oklahoma City (OK) The Oklahoman (Apr 3, 2013) – Interior Department fines Chesapeake $765,000