Michigan Regulators Accuse Chesapeake Energy of Antitrust Violations
On Wednesday, Michigan Attorney General Bill Schuette announced that his Corporate Oversight Division is filing criminal charges against Chesapeake Energy Corp. (NYSE:CHK) and Encana Oil and Gas USA (NYSE:ECA) “for their alleged 2010 collaboration to avoid bidding wars against each other in Michigan public auctions and private negotiations for oil and gas leases that caused prices to plummet.” Collaboration of this sort violates both federal and state antitrust laws, and if found guilty, those involved could face prison time on top of a financial penalty.
The ordeal dates back to at least 2010 when the shale gas boom in the United States was in full swing. Upstream oil and gas companies like Chesapeake and Encana were aggressively pursuing land rights, which in Michigan meant participating in biannual auctions of state-held oil and gas leases orchestrated by the state’s Department of Natural Resources (DNR.) Normally, companies bid against each other for these leases during these auctions, which allows for normal, competitive market behavior. The leases would go to those who desire it most and have the means to act on those desires.
But with the shale gas boom in full swing, upstream oil and gas companies were willing to pay huge amounts for those leases. Chesapeake in particular, which was under the leadership of founder and former CEO Aubrey McClendon at the time, was notorious for grabbing land rights at any cost. McClendon racked up nearly $14 billion in debt thanks to his aggressive acquisition of land.