Michigan authorities filed criminal antitrust charges Wednesday against Chesapeake Energy Corp. and Delaware-based Encana Oil and Gas USA for allegedly collaborating in 2010 to avoid bidding against each other for oil and gas leases.
Prosecutors claim Chesapeake and Encana executives conspired through a series of emails to divide up oil and gas leases in Michigan, and that the corporations crafted a draft agreement, according to the charges.
The emails, made public in 2012 by Reuters, included discussions between the companies’ executives regarding an agreement to split up Michigan counties so that each company would be an exclusive bidder for both public and private leases. Encana Oil and Gas USA is an American subsidiary of Calgary-based Encana Corp.
“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,” Michigan Attorney General Bill Schuette’s office said in a news release announcing the charges.
Prosecutors claim the energy firms also cooperated to reduce the price of leases obtained from private land owners.
In one email obtained by Reuters, former Chesapeake Energy CEO Aubrey McClendon told an employee that it was time “to smoke a peace pipe.” with Encana “if we are bidding each other up.”
Both companies on Wednesday issued statements denying the charges, and noting that each firm’s board had undertaken investigations into the allegations that found no misconduct.
Chesapeake spokesman Gordon Pennoyer said it was “disappointing” that the Michigan attorney general filed criminal charges.
“No agreement was ever reached between Chesapeake and Encana,” Pennoyer said in a statement. “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 issued a statement saying the 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,” according to the Encana statement. “The independent investigation completed by Encana’s board, as well as all evidence provided by Encana to the Michigan attorney general, clearly show that no agreement was reached and no violation of antitrust law occurred. Such charges have no merit.”
Schuette charged Chesapeake Energy and Encana Oil and Gas USA with one count each of antitrust violations relating to a contract or conspiracy in restraint of commerce, which carries a fine of up to $1 million for a corporation.
He also charged each corporation with one count of attempted antitrust violations, a misdemeanor punishable by a fine of up to a $1,000.
Representatives from both Chesapeake and Encana are scheduled to be arraigned on March 19 in a Cheboygan County court.
Chesapeake still faces a federal inquiry into its oil and gas lease purchasing practices by the Antitrust Division of the U.S. Justice Department, according to a recent regulatory filing.
The company is cooperating with the investigation and providing information to state and federal law enforcement, the company said in the filing.