A Michigan landowner is suing Chesapeake Energy Corp., Encana Corp. and a state-based operator, alleging that they conspired to rig a state auction bidding process to acquire oil and natural gas leases in 2010.
NorthStar Energy LLC alleges in its federal lawsuit that the producers entered into an anti-competitive agreement that had the effect of forcing NorthStar to sell oil and gas leases at prices less than they were worth. The acreage included mineral rights that allowed for exploration and development of the Utica-Collingwood shale formations in northern Michigan.
NorthStar has asked for a jury trial in the lawsuit, which was filed on Monday in U.S. District Court for the Western District of Michigan (NorthStar Energy LLC v. Encana Corp. et al, 1:13-cf-00200-PLM). In addition to Chesapeake and Encana, Michigan-based producer O.I.L. Niagaran LLC is also a defendant.
The collusion allegations first emerged publicly last year in a report by Reuters, which detailed some emails between officials of Chesapeake and Encana that discussed how the companies could avoid bidding against each other in a 2010 oil and gas leasehold auction by the Michigan Department of Natural Resources (DNR) (see Daily GPI, Feb. 21; Sept. 7, 2012). The two companies at one point said they had discussed forming a partnership to explore in Michigan, but it was never completed.
According to the lawsuit, NorthStar in early June 2010 put out for bid about 9,838 net lease acres in Michigan’s Antrim, Charlevoix, Cheboygan, Montmorency, Kalkaska and Otesgo counties. The bids were offered following promising reports earlier that year in Missaukee County, MI, by Petoskey Exploration, an affiliate of Encana (see Daily GPI, May 10, 2010a). The competitive state auction in May 2010 netted the state $178 million — a record breaking number (see Daily GPI, May 10, 2010b).
“Around the time of the auction, several potential buyers contacted NorthStar expressing interest” in acquiring its oil and gas leases, which could be used to explore the shale formations. Included in the group of those expressing an interest were Encana Oil & Gas USA Inc. and O.I.L., NorthStar claims. NorthStar alleges that the producers agreed to avoid bidding against each other to keep the bids on certain leases low. The operators “formed an anti-competitive agreement and shared competitive and proprietary information,” which is in violation of U.S. federal antitrust law and Michigan statutes, according to the lawsuit.
NorthStar is seeking treble charges, or triple the amount the plaintiff said it lost because of the alleged collusion.
Chesapeake said it could not comment on litigation. Encana in a statement said it intended to “vigorously defend any lawsuit which may be brought…”
An investigation into the collusion allegations remains ongoing by DNR and the U.S. Department of Justice.
“The importance of independent — rather than internal — investigations cannot be emphasized enough in a case involving antitrust bid-rigging allegations,” said Michigan Attorney General Bill Schuette. “Our thorough, independent investigation into these serious allegations will continue.”
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