Chesapeake Energy Corp. (NYSE: CHK) and Delaware-based Encana Oil and Gas USA (NYSE: ECA) (TO: ECA.TO) face criminal charges in Michigan over accusations the companies collaborated to avoid a bidding war, Michigan Attorney General Bill Schuette said.
In 2010, oil and gas lease prices for the Collingwood shale plummeted 97% in the space of roughly six months.
The companies are charged with one count each of antitrust violations relating to a contract or conspiracy in restraint of commerce. The crime is punishable by up to $1 million for a corporation. Participants in such a scheme face up to two years of confinement and/or a $10,000 fine.
"I will aggressively prosecute any company who conspires to break the law," said Schuette.
The companies were also charged with one count each of attempted antitrust violations, a misdemeanor punishable by up to one year of confinement and/or $1,000 fine.
No individuals were named in the charges.
The accusations stem from a May 2010 public auction of state-held oil and gas leases. During the auction, both Chesapeake and Encana purchased natural gas leases in Michigan. A second auction was held in October.
The companies have both conducted internal reviews and said they found no wrongdoing.
In 2012, the Reuters news agency uncovered a possible conspiracy in which the companies' executives discussed an agreement, following the May 2010 auction, to split up Michigan counties where each company would be an exclusive bidder for both public and private leases, Schuette said.
In e-mails reviewed by Reuters in its investigation, former 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.”
In the five-month period following the state's May 2010 auction, the attorney general said the 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.”
Chesapeake's board commenced its own investigation of the allegations in June 2012. In February 2013, the company said it had concluded that it did not violate antitrust laws in connection with the acquisition of Michigan oil and gas rights in 2010.
In June 2012, Chesapeake received a subpoena from the Antitrust Division, Midwest field office, of the U.S. Department of Justice (DOJ) related to the Michigan accusations. The subpoena required the company to produce certain documents before a grand jury in the Western District of Michigan.
The company also reported receiving demands for documents and information from state governmental agencies in connection with other investigations relating to the company’s purchase and lease of oil and gas rights.
Chesapeake cooperated with the investigations.
Encana’s board has also said it completed an internal investigation into allegations of collusion with competitors regarding land leasing in Michigan in 2010.
“Based on the results of the investigation, the board has concluded that Encana did not engage in such conduct,” the company said.
In June 2012, Encana's independent directors authorized its chair, David O'Brien, to oversee an investigation into the allegations. External legal counsel was retained in the United States and Canada to assist in undertaking a thorough investigation, which was conducted independent of company management.
"We have taken this matter very seriously and over the past 11 weeks have conducted a very rigorous investigation," O'Brien said in September 2012. "We hope that the results of this thorough and independent investigation will help to assure our shareholders, staff and the public that they can continue to place their confidence in Encana. We want to reiterate that Encana remains committed to acting ethically and in compliance with laws in all that we do."
Encana and Chesapeake still face a separate federal investigation, Reuters reported.
The DOJ has been looking into the possibility of anticompetitive practices in the purchase and lease of oil and gas properties in Michigan and elsewhere.
Representatives from both Chesapeake and Encana are scheduled to be arraigned on March 19 before Cheboygan County's 89th District Court.
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