Late in the summer of 2010, hundreds of farmers in northern Michigan were fuming.
All had signed leases with local brokers permitting drillers to tap natural gas and oil beneath their land. All were demanding thousands of dollars in bonuses they had been promised in exchange. But none knew for certain whom to go after.
That's because the company rejecting their leases hadn't signed them to begin with. In fact, the company issuing the rejections wasn't much of a business at all. It was a shell company - a paper-only firm with no real operations - called Northern Michigan Exploration LLC.
One jilted land owner, Eric Boyer-Lashuay, called to complain to the broker who had handled his lease. Northern, he recalls saying, is "a shell company ... a blank door with no one behind it."
Today, he puts it this way: "It was all a fake, all a scam."
Northern has voided hundreds of land deals, and was indeed a facade - a shell company created so that one of America's largest energy companies could conceal its role in the leasing spree, a Reuters investigation has found. Oklahoma-based Chesapeake Energy Corp. (CHK.N), the nation's second-largest gas driller, was behind the entire operation.
Chesapeake had created one shell company that set up another, Northern Michigan Exploration. Next, Northern hired brokers who signed leases with residents such as Boyer-Lashuay. And those brokers were under strict orders not to divulge Chesapeake's role, records reviewed by Reuters show.
In fact, the effort in Michigan was directed from the very top - by Chesapeake's CEO, Aubrey McClendon. In corporate filings that Chesapeake made public earlier this year - nine months after McClendon's agents began signing Michigan land leases - McClendon is named as the chief executive officer of Northern, the shell company that voided hundreds of those leases.
Chesapeake's effort to hide its involvement isn't illegal.
Chesapeake's own website advises land owners that their "main consideration" before leasing should be "to discover who will ultimately be producing your minerals." But Chesapeake's strategy made that extremely difficult for the Michigan land owners.