Chesapeake, Encana face criminal antitrust charges in Michigan

Wed Mar 5, 2014 6:42pm EST

1 of 2. Chesapeake Energy Corporation's 50 acre campus is seen in Oklahoma City, Oklahoma, April 17, 2012.

Credit: Reuters/Steve Sisney

(Reuters) - Oil and gas giants Chesapeake Energy and Encana Corp. were charged on Wednesday with colluding to keep oil and gas lease prices artificially low in the state of Michigan, the state Attorney General Bill Schuette said.

The announcement follows a lengthy investigation by Schuette's office into whether the firms -- the biggest land leasers during a speculative oil and gas leasing boom in Michigan's Collingwood Shale region during 2010 -- colluded to avoid prices from rising as they acquired land leases from landowners.

Michigan began looking into the companies' activities in 2012 after a Reuters investigation found that executives from the two firms discussed proposals to divide bidding responsibilities in the state for nine private landowners and counties in Michigan.

"I will aggressively prosecute any company who conspires to break the law," Schuette said in a statement.

The companies were charged with one count each of antitrust violations "relating to a contract or conspiracy in restraint of commerce," and one count each of attempted antitrust violations.

The boards of both Chesapeake and Encana previously conducted internal investigations and said they found no collusion. In earlier statements, the companies have acknowledged holding talks about forming a joint venture in Michigan during 2010, but said no agreement was ever reached.

The charges are misdemeanors which carry penalties that can include prison terms and fines for individuals, and up to a $1 million fine for a corporation.

In emails reviewed by Reuters in its investigation, then Chesapeake CEO Aubrey McClendon and other high-ranking Chesapeake and Encana executives discussed in 2010 how to keep lease prices on both state and private lands from rising by avoiding "bidding each other up."

The discussions occurred after a land lease frenzy pushed Michigan prices as high as $3,000 per acre in mid-2010. Lease prices subsequently fell sharply in the state later that year.

Market allocation agreements between competitors are illegal under the Federal Sherman Antitrust Act and state laws.

Encana and Chesapeake executives had been hoping for a civil resolution of the matter.

As recently as February 14, an attorney representing Encana Corp. told a judge in a civil antitrust-related case in Michigan that both Encana and Chesapeake were working toward a settlement with the state attorney general that could end his office's criminal investigation into the firms.

Encana and Chesapeake still face a separate, federal investigation.

The U.S. Department of Justice has been looking into the possibility of anticompetitive practices in the purchase and lease of oil and gas properties in Michigan and elsewhere.

McClendon left Chesapeake last April and now runs a new company, American Energy Partners.

Chesapeake and Encana are expected to be arraigned on March 19 in a Michigan state court in Cheboygan County, the Attorney General's office said.

(Reporting By Joshua Schneyer in New York, Brian Grow in Atlanta and Anna Driver in Houston. Editing by Ross Colvin)