By Joshua Schneyer, Brian Grow and Anna Driver
March 5 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
Michigan, state Attorney General Bill Schuette said.
The criminal charges follow 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
keep prices from rising as they acquired land leases from
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 are being charged with one count each of
antitrust violations "relating to a contract or conspiracy in
restraint of commerce," and one count each of attempted
Under Michigan law, an antitrust violation is considered a
misdemeanor, which carries penalties that can include fines and
prison terms of up to two years for individuals, and up to a $1
million fine for a corporation.
Encana and Chesapeake still face a separate, federal
antitrust investigation by the Department of Justice.
"This action has no merit and we will vigorously contest
it," said Chesapeake spokesman Gordon Pennoyer.
Encana denies the charges and will "vigorously defend" them,
company spokesman Jay Averill said in a statement.
The boards of both Chesapeake and Encana previously
conducted internal investigations and said they found no
collusion. The companies have acknowledged holding talks about
forming a joint venture in Michigan during 2010, but said no
agreement was ever reached.
"No agreement was reached and no violation of antitrust law
occurred," Averill added.
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."(r.reuters.com/deg27v)
The discussions occurred after a land lease frenzy pushed
Michigan prices on private lands as high as $3,000 per acre in
mid-2010. Lease prices subsequently fell sharply in the state
later that year.
After prices rose sharply amid intense bidding at a Michigan
state land auction in May 2010, "Chesapeake and Encana agreed
not to bid against each other in future lease auctions," the
Michigan Attorney General alleges in its complaint, reviewed by
Reuters. A subsequent state auction in October 2010 "raised just
$10 million on the lease of 273,000 acres, or less than $40 per
acre -- over $1,000 per acre less than the May 2010 prices," the
Documents reviewed by Reuters, and first reported in June
2012, show that former Chesapeake CEO McClendon and Jeff Wojahn,
the former president of Encana's U.S. unit, were aware of the
proposed auction bidding strategy. "Understand our teams are
working on a cooperative approach to state leasing, that's good
I think. Anything else out there encouraging to talk about?"
McClendon wrote in an email to Wojahn on October 17, 2010.
That chain of internal communications between Chesapeake
and Encana executives could help Michigan's case, one legal
"I think the Michigan Attorney General has a strong hand in
this case. They have strong evidence and some strong documents,"
said Darren Bush, a former antitrust attorney for the U.S.
Department of Justice and a professor of antitrust law at the
University of Houston.
A spokesman for McClendon declined comment. McClendon left
Chesapeake last April and now runs a new company, American
Market allocation agreements between competitors are illegal
under the Federal Sherman Antitrust Act and Michigan's Antitrust
Encana and Chesapeake executives had been hoping for a civil
resolution in Michigan.
As recently as Feb. 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.
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. That
investigation is ongoing, the DOJ told Reuters last month.
"Michigan is out in front, but the big question now is what
the DOJ will do," said Harry First, an antitrust law professor
at New York University. "That inquiry could be more serious in
terms of fines, and what happens in Michigan could affect the
companies' ability to defend against a federal case."
DOJ spokeswoman Gina Talamona declined comment.
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.