Attorney General Bill Schuette: Encana and Chesapeake Energy criminally charged with colluding to keep oil and gas lease prices artificially low in Michigan; Also face separate, federal antitrust investigation by Department of Justice

Calgary’s Encana accused of bid-rigging in Michigan, State attorney general files criminal charges against 2 companies over oil and gas leases by The Associated Press, March 06, 2014, CBC News

Encana faces criminal charges in Michigan over bidding on oil and gas leases, Charges also filed against Chesapeake by The Associated Press, March 6, 2014, The Calgary Herald
Michigan Attorney General Bill Schuette said Wednesday that he has filed criminal charges against Chesapeake Energy Corp. and Encana Corp., accusing them of colluding to avoid bidding against each other for Michigan oil and gas leases. Schuette said the antitrust violations happened in 2010, when Oklahoma City-based Chesapeake and Calgary, Alberta-based Encana bought natural gas leases in Michigan. “I will aggressively prosecute any company who conspires to break the law,” he said.

In a statement, the attorney general’s office said it suspects collusion was responsible for a steep drop in the price of drilling rights auctions in Michigan. “In the five-month period following the state’s May 2010 auction, this alleged conspiracy may have been a key driver behind the state-held lease price in Michigan going from $1,510 per acre in May 2010 to less than $40 an acre at the October 2010 auction,” Schuette’s office said.

An arraignment is scheduled March 19 in Cheboygan County District Court in Cheboygan for representatives of the two companies. The charges carry a penalty of up to two years’ imprisonment for individuals and a fine of up to $1 million for corporations.

Chesapeake spokesman Gordon Pennoyer told The Associated Press that the filing of the charges disappointed his company. “No agreement was ever reached between Chesapeake and Encana,” Pennoyer said in an email. “As previously disclosed, a thorough investigation conducted by independent counsel retained by Chesapeake’s board in 2012 concluded that Chesapeake’s activities in Michigan did not violate antitrust laws. This action has no merit and we will vigorously contest it.” Encana spokesman Jay Averill said his company “denies and will vigorously defend the charges put forth by the Michigan attorney general’s office.”

“In 2012 Encana’s board undertook a comprehensive investigation into the allegations of collusion with competitors relating to land transactions in Michigan, and concluded that Encana did not engage in such conduct,” Averill said. That probe and other available evidence “clearly show that no agreement was reached and no violation of antitrust law occurred,” he added. [Emphasis added]

Chesapeake, Encana face criminal antitrust charges in Michigan by Joshua Schneyer, Brian Grow and Anna Driver, Editing by Ross Colvin and Peter Henderson, March 6, 2014, Reuters in News Yahoo
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 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 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 antitrust violations.

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.”(

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 complaint says.

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 expert said.

“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 Energy Partners.

Market allocation agreements between competitors are illegal under the Federal Sherman Antitrust Act and Michigan’s Antitrust Reform Act.

Encana and Chesapeake executives had been hoping for a civil resolution in Michigan.

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.

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. [Emphasis added]

2014 03 06 Encana Chesapeake face criminal antitrust charges collusion on oil gas leasing in Michigan headline snap

2014 03 05 Encana Chesapeake charged with Antitrust violations

2014 03 06 Law360 Chespeake Encana hit with Criminal Antitrust Charges

2014 03 06 Chesapeake Encana Face Criminal Antitrust Charges in Michigan Daily Oil Bulletin snap

Above snaps taken March 6, 2014

[Refer also to:

Down goes Encana’s Eresman! Natural gas giant’s president and CEO abruptly announces his retirement

Encana CEO Randy Eresman retires suddenly, News release confirms top executive stepping down after 35 years

Mr. Eresman also led Encana during a time when it was accused of colluding with Chesapeake Energy Corp. to keep prices low at land auctions in Michigan. Those allegations triggered an investigation by U.S. federal and Michigan authorities….

EnCana faces California gas price-fixing trial

Ewart: Encana’s in-house exoneration only goes so far

Encana clears itself of collusion in Michigan

Encana’s Board Finds No Collusion

Encana says internal probe found no evidence of land sale collusion

Encana’s denial of collusion charges leaves many questions unanswered

Internal investigation clears Encana of collusion allegations with Chesapeake

Calgary gas producer says internal probe shows no wrongdoing

Chesapeake Energy subject to U.S. antitrust investigation for possible collusion with Encana, Company subpoenaed to produce documents for grand jury in Michigan land sales probe

Ewart: Encana remains quiet on Michigan allegations

Chesapeake, Encana antitrust case deepens

Justice Dept. probes Chesapeake over possible collusion

Encana’s troubles widen with collusion allegations

Encana probes collusion accusationEncana investigating claims of collusion with rival, Calgary energy company accused of land sale scheme with Chesapeake Energy

Special Report: Chesapeake and rival plotted to suppress land prices Reporting

Encana embroiled in new morass as chairman launches probe into collusion accusations ]

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