Marcellus gas drillers challenge Kathleen Kane's antitrust tactics

Two major players in Marcellus Shale natural gas drilling have accused Attorney General Kathleen G. Kane of attempting to litigate federal antitrust claims in state court.

Chesapeake Energy Corp., three of its subsidiaries, Anadarko Petroleum Corp. and one of its subsidiaries make the accusations in a notice filed Friday removing a suit Kane filed in December 2015 from Bradford County to U.S. Middle District Court.

Pennsylvania Attorney General Kathleen Kane

The complaint, which has been amended twice, accuses Chesapeake of denying thousands of Marcellus Shale property owners natural gas royalty payments to which they are entitled.

Chesapeake and Anadarko, which is headquartered in Texas, are accused of agreeing to allocate certain territories for the acquisition of leases, resulting in lower bonus and royalty rates.

The first amended complaint asserted claims under the state's Unfair Trade Practices and Consumer Protection Law.

The attorney general's office did not respond to defense motions to dismiss that complaint but filed a second one the defendants contend alleges that certain joint venture endeavors between Chesapeake and Anadarko in effect violate the Sherman Act and Federal Trade Commission Act.

The companies state in their removal notice they believe this is the first time in the history of the commonwealth an attorney general has sought to assert antitrust claims in state court.

The case must be heard in federal court because Pennsylvania does not have an antitrust statute, they say.

They call the antitrust claims novel and say issues raised by the commonwealth will have significant ramifications for joint ventures across all industries.

Joint ventures are prevalent throughout the United States and abroad and are especially significant to the oil and gas industry due, in part, to the capital-intensive nature of the business, they say.

"In order to compete in modern markets, competitors sometimes need to collaborate," the court document states.

"Competitive forces are driving firms toward complex collaborations to achieve goals such as expanding into foreign markets, funding expensive innovation efforts and lowering production and other costs."

The attorney general's attempt to transform the Consumer Protection Law into a state antitrust statute is undermined by her own statements there is no commonwealth antitrust law, Chesapeake and Anadarko say.

Kane's name does not appear in the removal notice, but there are a number of references to the attorney general.

Chesapeake, based in Oklahoma, has called baseless the allegations it engaged in a "self-dealing scheme" that resulted in increased deductions being passed onto landowners and it vowed to fight them.

It is one of a number of suits alleging Marcellus Shale property owners were promised certain amounts in royalties when they signed leases to allow drilling but received lower payments once wells started producing gas.

If you purchase a product or register for an account through a link on our site, we may receive compensation. By using this site, you consent to our User Agreement and agree that your clicks, interactions, and personal information may be collected, recorded, and/or stored by us and social media and other third-party partners in accordance with our Privacy Policy.